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Archive for the ‘Economic Program’ Category

More on our Minimum Pension

April 10th, 2014

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We appreciate EPI’s comments on our New York Times op-ed in which we unveil a new proposal for a minimum pension. Ms. Morrissey poses several questions and calculations that we wish to answer.

Ms. Morrissey argues that a life-cycle account with its mix of stocks and bonds is too aggressive an investment for worker pensions. We respectfully disagree. However, this is immaterial because investors in our Savings Plan for Universal Retirement (SPUR) accounts would have a choice of fund options just as federal employees have today under the Thrift Savings Plan (TSP). Individuals could choose less aggressive or more aggressive options, but each fund would be well-diversified. The TSP, with fees only a fraction of those charged for 401 (k) plans, is working well for millions of current and former federal employees. A similar set-up, with low fees and diversified funds, should work well for everyone else.

Ms. Morrissey’s estimated cost to business is wildly inflated. She asserts the plan would generate new costs for the employers of all 165 million workers covered by Social Security. To reiterate from the op-ed, any employer that provides a retirement plan that is at least as generous as our proposal would face no new requirements. That would include virtually every public employee, teacher, cop, nurse, firefighter, municipal trash collector, and congressional employee. Practically any private company that provides a defined benefit or defined contribution to a plan would fulfill the requirement. That includes most white collar jobs, most union jobs, as well as jobs at think tanks like Third Way and, presumably, EPI. And as our forthcoming idea brief will explain, those who have already reached retirement age, would not have to participate.

According to the Employee Benefit Research Institute, 43 million full-time, full-year workers ages 21-64 are not currently enrolled in an employer-sponsored plan. Another 30 million part-time or part-year workers in the same age group would be affected, but their enrollment would be less expensive since the cost is based on hours worked. So in total, the magnitude of required new contributions would be about one third of what Ms. Morrissey estimates. More importantly, this is not a lost cost to businesses. It will improve the quality of their employment packages and raise the compensation of their workers. And, unlike health premiums, a minimum pension is a fixed, predictable, cost.

Still, the cost to business is real, particularly in the near-term, because wages are “sticky-down.” That is, employers are averse to cutting wages in nominal terms. So they are likely to bear most of the cost in the early years. To help employers start contributing—and to keep even modest downward pressure on working people’s wages at bay—government can pick up some of the tab. For example, modest adjustments to the maximum allowable contributions to 401 (k)-type plans would raise nearly $100 billion, according to the CBO. This revenue could be applied to help offset the costs to small and medium-sized businesses.

Ms. Morrissey also writes that workers could still outlive their savings if they opt out of an annuity and take their nest egg in a lump sum at retirement. Our plan’s default option is an annuity, which would last for the life of the owner, because we think that’s best. But if a worker prefers to take a lump sum or withdraw at her own pace, she should have that right. After all, it’s her money.

Finally, there is Social Security. Our proposal has no more impact on Social Security than private sector retirement plans do now. And nothing in our proposal will change the fact that Social Security is scheduled to become insolvent in 2031. Some believe solvency should be achieved by raising taxes alone. Some believe it should be achieved solely by cutting benefits. And some believe it will require a combination of the two. We fall into the latter category and believe it can be done while increasing benefits for low-income seniors. But that is separate and apart from our minimum pension proposal.

Capitalize Workers!

April 7th, 2014

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Raising the minimum wage has justifiably captured policy makers’ attention, but if the goal is to materially raise living standards for every American worker, we should also be calling for a minimum pension. Done right, this would not only create real wealth for the middle and working classes, it would use the power of financial markets to reduce wealth disparity instead of widening it.

There is a vast difference in the way the wealthy and the rest of Americans earn their money. In 2010, 60 cents of every dollar earned by those in the top 1 percent came from investments and businesses they owned. For the middle class, it was 6 cents.

For decades, the returns to capital have far outstripped the returns to labor. Before the mid-1980s, worker salaries constituted 65 percent of national income. In 2012, they were 58 percent. Economists rightly fret over how this contributes to wealth inequality. Well, if you can’t beat ’em, join ’em. If all working people, whatever their wage, could get a piece of these gains, it would improve their financial well-being exponentially. This is where the minimum pension comes in.

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As the ACA Stands Up, Can Programs for the Uninsured Stand Down?

March 25th, 2014

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It is clear that HealthCare.Gov is working better. Enrollment figures are climbing. Over 5 million Americans have selected a plan through the federal and state marketplaces, and another 6.3 million are getting coverage through Medicaid. While problems remain, the level of interest in getting coverage has grown—to as many as 2 million visits to the federal website in one day.

But amid these public proof points will be another less obvious measure of success—a decline in the need for a patchwork of programs designed to help the poor who continue to lack coverage despite the Affordable Care Act (ACA).

One of those programs, called the 340B Drug Pricing Program, however, shows no signs of slowing down. The 340B program supports clinics and hospitals that serve a high proportion of low-income and elderly patients. 340B requires drug manufacturers to provide discounts to hospitals and clinics that generally serve low-income patients or other groups like HIV-AIDS patients. The program allows hospitals and clinics to dispense the drugs purchased through 340B to their patients who may have their own private insurance coverage and pocket the difference between their deeply discounted purchase price and the amount that a health plan reimburses for the drug. For example, hospitals like Denver Health, which is the public safety-net provider for the city, have used 340B to expand services for at-risk patients. The discounts range from 20% to 50% off the cost of drugs. Those discounts are often bigger than the discounts required of drug manufacturers for Medicaid patients. Federal auditors have found that Denver Health is compliant with program requirements. But they also have found many other facilities to be out of compliance under current federal policy. Moreover, current law and regulations may be inadequate to ensure 340B is truly helping vulnerable Americans.

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GOP Health Care Reforms would Affect Jobs, Too

February 10th, 2014

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Lost in the back-and-forth over the most recent CBO report on the Affordable Care Act (ACA) is a simple fact that any expansion of health care coverage for Americans will inevitably have an impact on America’s working habits. It is no less true of GOP proposals than Obamacare.

To make coverage more affordable, any proposal must provide some sort of subsidy. For example, the recent Republican proposal from Sens. Tom Coburn (R-OK), Richard Burr (R-NC), and Orrin Hatch (R-UT) includes a tax credit for lower income workers. The act of giving someone financial assistance for health care will naturally reduce the need to work somewhat.

Rep. Paul Ryan (R-WI) thinks this creates a poverty trap. While Ryan neglects the fact that millions of Americans are bankrupted every year due to medical bills, he instead focuses on the ACA’s subsidies to buy coverage through the federal and state marketplaces. These subsidies decline as workers earn more money, which means that workers have to work a little harder to keep another dollar in take-home pay. So yes, some people will choose to work less to keep their subsidy. But does that make the ACA a poverty trap? Of course not. We have dozens of social insurance programs ranging from food stamps to the Earned Income Tax Credit, and yet we remain the world’s greatest economy.

The alternative to phasing out benefits by income is to provide the same benefit to rich and poor alike, as many European nations do. But that requires higher tax rates or cuts in government services, which, in turn, leads to greater burdens on everyone.

Here is how CBO describes this problem in their most recent report:

CBO’s estimate that the ACA will reduce employment reflects some of the inherent trade-offs involved in designing such legislation. Subsidies that help lower- income people purchase an expensive product like health insurance must be relatively large to encourage a significant proportion of eligible people to enroll. If those subsidies are phased out with rising income in order to limit their total costs, the phaseout effectively raises people’s marginal tax rates (the tax rates applying to their last dollar of income), thus discouraging work. In addition, if the subsidies are financed at least in part by higher taxes, those taxes will further discourage work or create other economic distortions, depending on how the taxes are designed. Alternatively, if subsidies are not phased out or eliminated with rising income, then the increase in taxes required to finance the subsidies would be much larger. 

This is nothing new. CBO had previously estimated that the ACA would have some impact on jobs. What’s new is that the CBO has refined his estimate and made it more precise based on the latest research.

Some conservative commentators like Avik Roy have acknowledged that GOP plans will also affect working habits due to income-based subsidies. But conservatives persist in the belief that GOP alternatives are morally superior even though their actual solutions are just different choices about the amount of the subsidies and the degree of security offered to American workers.

Economics is called the dismal science because it shows the downside to any choice. But there’s nothing dismal about having security and stability in your health care. As Jason Furman, Chairman of the Council of Economic Advisors at the White House explains, the ACA provides many economic benefits. Today, under Obamacare, millions of Americans no longer have to worry about getting coverage for a pre-existing condition.  They don’t have to stay in a job that they don’t like because of their health insurance. And they don’t have to worry about losing their health care coverage if they lose their job. The GOP needs to make it clear whether they disagree with the goals of Obamacare or the means.

NSA Snooping’s Negative Impact On Business Would Have The Founding Fathers ‘Aghast’

December 20th, 2013

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James Madison would be “aghast.” That was one of the incendiary charges leveled at the National Security Agency and its mass surveillance activities by Judge Richard Leon in his December 16 opinion ordering the government to stop collecting some of the data that it’s been gathering on private citizens here and abroad.

But Thomas Jefferson might be horrified as well, because the NSA collection efforts are having a fairly profound effect on American business and its efforts to sell goods and services abroad. Jefferson, a big believer in the American “taste for navigation and commerce,” would be dismayed that our government was doing things that could hurt our competitiveness and our ability to set the terms of global trade.

To be sure, there has always been some tension between U.S. high-tech industries and our national security. In the 90s, the rules were fairly primitive, such as limitations on exports of high-performance computing designed to prevent countries from developing weapons of mass destruction. Those restrictions were quickly rendered outdated by Moore’s Law, but had they remained they would have prevented the exports of game consoles like Xbox.

Since then, increased globalization and the rise of terrorist organizations operating in the shadows and across national boundaries have complicated both the security and economic issues. The current debate about Edward Snowden’s intelligence revelations may seem like an unlikely place to see that tension emerge, but beyond the discussions of civil liberties and counterterrorism, it is becoming clear that the post-9/11 surveillance apparatus may be at cross-purposes with our high-tech economic growth.

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Response to “Conscience of a Liberal”

December 6th, 2013

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In a recent blog post, Paul Krugman writes of Third Way’s “fact-free denunciations of progressives for not being willing to cut entitlements.” In response, I offer three points.

First, Mr. Krugman says the “[Social Security] system might possibly have to pay lower benefits in the future.” If you believe the Congressional Budget Office or the Social Security Actuaries, there is no “might possibly” about it. Without changes to either benefits or revenue, the Social Security Trust Fund will be insolvent. The only question is whether that occurs in 2031 (CBO) or 2033 (the actuaries).

Second, our support for balanced fixes to Social Security and Medicare is not to reach some magic budget number, but based on the fact that over the past five decades the balance of federal spending has shifted. At the dawn of the Great Society in the 1960s, federal investments (as defined by the Office of Management and Budget) outstripped federal entitlement spending three-to-one. While that balance obviously needed to change to address poverty and elderly health care, by last year the ratio flipped to one-to-three. In ten years, the ratio will be five dollars for the three major entitlement programs for every one dollar in federal investments. As we’ve seen with the recent budget deals and sequestration, investment programs are the first on the chopping block and entitlements are treated as sacrosanct.

Third, Mr. Krugman says that it is his “strong guess” that Third Way means “raising the retirement age” to address Medicare cost containment. That is incorrect. We do not support raising the retirement age for Medicare eligibility. He also says that we do not offer any ideas to reduce Medicare spending, but on our website are several ideas to do so. They include means testing Medicare premiums for high income seniors, dealing with end of life care, bundled payments to improve care and reduce duplicative treatment, and medical homes. And of course, we fought alongside other progressive groups in Washington to pass the Affordable Care Act.

To be sure, Republicans have been intransigent in their refusal to consider new taxes and their opposition to the Medicare cost saving measures in the ACA. But we believe that Democrats must also be willing to take on some sacred cows if we are going to be able to invest in the future and meet our obligations to our seniors and our poor.