Counting Coup

The fiscal settlement passed last night did absolutely nothing to improve the deficit or the financial sanity of government.  Its only purpose, as far as I can tell, was to let Democrats count coup on rich people as a reward for winning the last election.  It's like telling your kids that on their birthday, you will take them to do absolutely anything they like, and Democrats chose to display their disdain for rich people as their one act of celebration.    A few other observations:

  • I had expected that they would gen up a bunch of fake savings and accounting tricks to pretend there were spending cuts in proportion to tax increases, but apparently they did not feel the need to bother.  Essentially only trivial spending cuts were included.
  • At what point can we officially declare that the reduction in doctor reimbursement rates that supposedly paid for much of Obamacare is a great lie and will never happen?  Congress once again extended the "doc fix" another year, eliminating the single largest source of savings that was to fund Obamacare.  Congress has been playing this same game  -- using elimination of the doc fix to supposedly fund programs and then quietly renewing the doc fix later -- for over a decade
  • The restoration of the FICA tax is probably a good thing.  Though I think the reality is something else, people still think of these as premiums that pay for future benefits, so in the spirit of good pricing, the premiums should reflect the true costs.  And FICA premiums have always been set about at the right level (it is only the fact that past Congresses spent all the money supposedly banked for future generations that Social Security has a financial problem).  In fact, we should raise Medicare premiums as well.
  • Apparently, though I have not seen the list, this last minute deal was chock full of corporate cronyism, with a raft of special interst tax preferences thrown into the mix.

And so ends, I suppose, the 12-year saga of the Bush tax cuts, with tax cuts for the rich revoked and the rest made permanent.   The establishment media decided early on that it was going to run with the story line that these cuts were "for the rich."  The irony, that will never get any play, is that now, at the end, it is all too clear that this was far from the case.  Reversing the tax cuts to the rich only reversed a small percentage of the original tax cuts.  In fact, if the Bush tax cuts had been mainly for the rich, then the Democrats would not have even bothered addressing the fiscal cliff.

  • roxpublius

    I disagree in the sense that I don't believe that FICA should be able to continue to operate under the pretense that it is anything other than a wealth transfer like any other (and a particularly regressive one at that).

    There is no reason it should be taxed and accounted for as separate from the federal budget as a whole. Congress certainly hasn't treated the funds as a separate account.

  • Gozer

    Its alright. My generation, the millenials, will pay for it all. But we took ourselves out of the debate by not voting and by not organizing an advocacy group. Oh well.

  • http://www.facebook.com/matthew.slyfield Matthew Slyfield

    "The restoration of the FICA tax is probably a good thing. Though I
    think the reality is something else, people still think of these as
    premiums that pay for future benefits, so in the spirit of good pricing,
    the premiums should reflect the true costs. And FICA premiums have
    always been set about at the right level (it is only the fact that past
    Congresses spent all the money supposedly banked for future generations
    that Social Security has a financial problem). In fact, we should raise Medicare premiums as well."

    This is untrue. While SS and Medicare were sold as social insurance programs, legally they have always been pay as you go systems where current workers taxes pay the benefits of current beneficiaries.

    Congress did not spend the money supposedly banked for future generations. It is impossible for them to have done so because NO money was ever banked.

    The law that first created SS requires that every dollar in the trust fund be invested in US treasury bonds (the law isn't exactly worded that way but it is the practical effect as there are no other securities that meet the laws requirements). The money that supposedly went into the trust fund all ended up in the general fund without congress having to do anything because that's where all the money from sales of treasury bonds goes.

    Until the late 70s to early 80s the balance of the trust fund was always small and it was only used to balance fluctuations in revenue vs benefits on a year over year basis.

    At that point the baby boomers realized that there is a basic problem with SS. When it was first established there were more than 10 workers for every beneficiary. However, do to a combination of increasing life span and other demographic shifts by the time the baby boomers all retire the ratio of workers to beneficiaries will be less than 2. They went to the government and demanded a fix.

    The government responded by raising the SS tax rates to build up the balance of the trust fund. This was a fraud. The knew that there wouldn't be any money in the trust fund when it was needed. It's just a gimmick to allow the benefit levels to stay high after revenues inevitably dropped below total benefits payed.

    By law, going back to the establishment of SS total benefits payed can not exceed current revenues + trust fund balance..

    The trust fund is just an accounting gimmick because they knew at the time that when the trust fund would be needed that the only way to actually spend the contents of the trust fund would be for the government to issue $1+ in new debt against general accounts for every $1 spent from the trust fund.

    The SS trust fund is a fraud and it has always been a fraud. The whole SS program was sold to the public on false pretenses back when it was first established in the 1930s.

  • http://www.facebook.com/matthew.slyfield Matthew Slyfield

    When the phony balance of the trust fund runs out it will require 30+% across the board cuts in SS benefits.

  • nehemiah

    While I have all kinds of problems with the social security program it is not yet a wealth transfer program. At this time the wealthy retiree is entitled to the same benefit as anyone else who qualifies for the program. When they start applying "means testing" you'll have your wealth transfer program.

  • nehemiah

    We are governed by a combination of weasels, snake oil salesmen and imbeciles. One of the provisions included a $500,000 small business deduction for capital equipment
    purchases. The idea being to incent equipment purchases. However, they made
    it retroactive to January 1, 2012. So now all those small businesses that already made their equipment purchases in 2012 are going to get a reward after the fact. This is payback to general business lobbying interests for sure.

    Gentlemen, I fear we have lost the ship. All hands to the lifeboats.

  • perlhaqr

    Apparently, though I have not seen the list, this last minute deal was chock full of corporate cronyism, with a raft of special interst tax preferences thrown into the mix.

    This? This is my shocked face. Oh, ever so shocked.

  • MingoV

    "... Congress once again extended the "doc fix" another year, eliminating the single largest source of savings..."

    Congress used the Medicare physician reimbursement cut to "balance" a budget, but it knew that a cut in already low Medicare reimbursement would result in more physicians refusing to see Medicare patients. So, soon after the budget passed, Congress passed the "doc fix" and did so every year since then. Congress, out of a desire to avoid bad publicity, refused to fix the legislation that "mandated" the physician reimbursement cuts.

  • perlhaqr

    I believe roxpublius was referring to the fact that it's a wealth transfer not from "the rich" to "the poor", but rather from "the young" to "the old".

  • MingoV

    It is a wealth transfer program. A person whose average earnings were $60,000 does not receive twice the SS retirement benefits as one whose average earnings were $30,000.

  • mesocyclone

    I see this as the dems playing a longer game. They know that they need to control the house in 2014 in order to achieve their true Social Democrat goals (along with gun banning, etc). So they are playing this one to allow the compliant media and the propagandized public to believe the Republicans are the source of all evil.

    As long as the Repubs control the house, the only things the Dems can achieve are those which Repubs are afraid to vote against because of their strong disadvantage in media and public perception. Obama and the Dems want to get rid of this obstacle so they can go full speed ahead in destroying what's left of our freedoms and our economy.

  • bigmaq1980

    I fear that this was only the first test in Obama's/Dems agenda. They wanted to see how far they could push - very far indeed. GOP are putting on a brave face, saying that now that taxes are "out of the way" it is time to focus on spending - right!

    Watch for major new intrusive legislation to be heading down the pike, now that Obama has proven that he has free reign and a media without challenge.

  • roxpublius

    you are assuming people of the same age. but that's not what happens. as it is, younger people pay in, older people collect. younger people also happen to have lower incomes, higher debt loads (esp. college loans), less assets, and higher unemployment. seems immoral to have them pay in to support folks who have had the better part of their lifetime to establish their present financial condition, especially when there is really no reasonable expectation that the same level of benefit will be there for them when they are of a similar age.