How Obama is Going to Pay for a $245 Billion Cut to Social Security Contributions

out of work free cardWe all know the United States needs jobs. We need jobs right now! Last week Obama proposed a new Stimulus plan, which we did a first pass on. Unfortunately most press is busy covering superficial politics instead of what is in the bill, how it would be paid for and most importantly, the effectiveness, or lack thereof.

USA today claims the plan is to tax the rich as they put it, or as we put it, close loopholes and tax hedge fund managers, currently living living high off the hog at a 15% tax rate.

Here's the gist of how Obama plans to pay the $447 billion his plan costs.

  • Limit on itemized deductions ($200,000 individuals, $250,000 families) - $400 billion
  • Carried interest would be treated as "ordinary income" rather than at capital-gains rate - $18 billion
  • Oil- and gas-company tax breaks - $40 billion
  • Corporate-jet depreciation would change - $3 billion

To wit, we already know Republicans will block plugging up corporate tax loopholes at every turn. Even worse, while the OMB claims plugging up these tax loopholes will generate $467 billion over ten years, this takes the above revenue generators off teh table for budget reduction. Least we forget, there is this super committee with a budget deficit reduction goal of $1.5 trillion.

While the GOP will continue the spin that somehow wealth transfer to the rich through tax cuts creates jobs, fortunately, the Washington Post actually did their job. They showed it is what is it, wealth transfer to the rich creating massive income inequality and deficits. In this article, we see lobbying for capital gains cuts since the 1970's and how it has not translated into jobs, but sure has contributed to income inequality.

The K Street office of Mark Bloomfield, president of the American Council for Capital Formation, is full of knickknacks collected in three decades of lobbying for cutting the capital gains tax.

With the above, why would Obama push defunding social security as a stimulus? Of course team Obama is claiming the lost social security payments will be made up from the general revenue fund, but considering the coming budget cut proposals, that might be simply a technicality.

On the plan itself, most Democrats and major press are quoting Mark Zandi's overly optimistic estimate of 1.9 million jobs and an increase in 2% annual GDP if Obama's plan is implemented. Below are Zandi's GDP multipliers.

 

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Of the 1.9 million jobs added in 2012 under the president’s plan, the largest contributor would be the extended payroll tax holiday for employees, which adds approximately 750,000 jobs. The payroll tax holiday for employers is responsible for adding 300,000 jobs, although this may be understated; quantifying the impact of this proposal is difficult. Infrastructure spending adds 400,000 jobs—275,000 jobs are due to additional unemployment insurance funding and 135,000 jobs result from more aid to state and local governments.

We find 1.9 million jobs very hard to believe, mainly because Zandi isn't taking into account inflation. Multipliers assume additional money into the economy will re-appear as personal consumption expenditures. In other words, workers will get some extra cash out of their paycheck and spend it. We analyzed payroll tax cuts as stimulus earlier and noted the previous employee side tax cut on social security contributions went straight into the gas tank, as energy prices shot up.

Let's assume Zandi's calculations are right, and these two cuts will indirectly generate 1.05 million jobs. The amount of money for both the employee and employer payroll tax cut is $245 billion dollars. If we take $245 billion dollars and create $30,000 yearly salaried jobs, assuming a 25% overhead for benefits and administration costs, to a total cost of $37,500 per job, that's 6.53 million jobs. Clearly it's better to enact a direct jobs program than enact payroll tax cuts if the goal is to get people back to work. Additionally, those 6.53 million people could be put back to work doing something useful, from construction, to teaching, to manufacturing to joining start-up incubators and forming new companies. There are so many people out of work at all education levels, all skill levels and all age levels, literally one could form a host of companies simply by organizing these people. True those jobs are only a year, but if one created 1.05 million jobs this way, simply directly hiring people, one could keep 1.05 million working for over 6 years.

Is it just me, or wouldn't it be better if one wants to create jobs, to simply create them?

We have even more wolves in sheep's clothing than just the massive cuts to the taxes which fund social security. New Deal 2.0 points out the Georgia Works Program actually gives employers free labor and would be quite a disaster in for U.S. labor markets if enacted at the Federal Level. Obviously giving employers free labor is none too good to get them to actually pay for it instead.

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Comments

He's not.

President Zero does not need Social Security and couldn't give a crap about social programs or unemployment or labor rights or healthcare or the rule of law or deficits or the middle class. President Zero is in the pocket of the oligarchy. Hence, all his policies are oriented toward making Amerika more "competitive" with other Banana Republics by dismantling the New Deal, just like the four puppet Presidents before him. Like his mentor Billary he can't wait to move to the Hamptons and reap his loot for pimping out the working class.

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Odin

Rick Perry, GOP debate

Came out the makers of the HPV vaccine have close ties to the Perry campaign, Merck, what a surprise.

They all are corrupted. I think this, as usual, has much more to do with politics than actually putting together a target program to generate jobs.

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Plus Enron connection

It doesn't matter what the nature of the connection was.

Any connection of that type with a fraud-machine like Enron that took so many down with it would be enough to destroy any Democrat candidate this early in the nomination process!

But, of course, there's another standard entirely for a golden boy of the GOP.

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Let's Just Create Jobs

We could spin will, take up the 24/7 media's time with endless talk.

Or we could put together a plan to put people who've been unemployed for two years or more into a new situation that's reasonably compatible with their skills and interests. It might not be wonderful or a perfect fit, but it would be a job.

We already have people who've been out since late 2007. It is time to get the hard cases taken care of.

Either that or do what they do in Europe and give unemployment benefits indefinitely.

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I'd like to see a WPA and a CCC

incorporated with infrastructure jobs and also a "VC" branch or incubator start ups with public funds, and salaries.

The more I pour over these numbers and between the politics, spin and then watching money just pour out of the country in the first stimulus, I think this is the only way to keep the money in the domestic economy ...by tying it to U.S. citizens, preferred and having the program also opened up to permanent residents, but have a preferred clause for those with citizenship.

It's pretty clear the government is so corrupt and outsourced, it's a mess, but I wouldn't give even one task to an outside contractor. About the only organization I'd trust to operate a direct jobs program would be the military (and we know how that goes on Contractors and the DoD already)...

but it seems to go downhill from there in terms of giving contracts to people who can actually execute on them and deliver, not rip people off and just in the business of doing government contracts and their other business is just some topic in order to obtain federal grant and contract dollars.

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May be possible, but difficult

This makes sense, but if you look at history, you see that there are cultural prerequisites for anything like these enormous essentially social programs to work. For such programs to work, they have to be big enough to amount to a full employment program. They have to be made available to all comers. That's almost unimaginable, given the political situation today. But I think your idea is within the realm of the possible.

My information on, for example, the Job Corps, is that it is riddled with bureaucratic cupidity and idiocy. Same for CCC-like entities recently attempted in the stimulus. Plus, you are looking at VC of the old RFC type, which did have many successes, but I don't think it will work with current preference systems, although of course you have to include a citizenship or permanent residency requirement. The thing is to clearly understand at the gitgo that the purpose is to foster small productive businesses and create productive employment -- not to solve all the other problems of the world.

I don't know. In a way, the proposal makes sense, but thinking about the current state of society ... I'm not sure. Just to set up a WPA and a CCC ... that won't work as intended ... there are legions of devils in the details ... think back to Johnson's War on Poverty ... and, on top of all that, there's the little noted first part of Bush v. Gore that makes discrimination by neighborhood or by town unconstitutional, as such. There are just an accretion of structural obstacles that would need to be cleared away. IMHO.

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The fundamental problem there

The fundamental problem there is, "we" can only refer to wage earners as a group and wage earners do not have the authority to make policy. The well heeled are not a part of that "we' to which you refer and neither are politicians. That is a problem for the progressive movement or what ever you like to call it, any agent for equality can be and has been bought off or eliminated. Our political representatives are only human, greedy and/or scared and want to provide for their families. Understanding how power works the ambitious or smart follow orders. The Grand Experiment is a failure, failed for reasons that were predicted and are ages old.
A labor surplus is what the capitalist seek. It's good for business. The current economic situation is no coincidence, it's the plan.

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Odin

Newly discovered Franklin quote

Disclosure: Please do not interpret anything in this comment as endorsing or opposing any candidate(s) for political office. Especially, please do not interpret anything herein as endorsing or opposing any candidate for the presidency. See e.g., Fletcher on Romney on trade

 

Commenting on Jersey's writing about what "we" can or could do, Odin says:

The well heeled are not a part of that "we' to which you refer and neither are politicians. That is a problem for the progressive movement or what ever you like to call it, any agent for equality can be and has been bought off or eliminated. Our political representatives are only human, greedy and/or scared and want to provide for their families. Understanding how power works the ambitious or smart follow orders. The Grand Experiment is a failure, failed for reasons that were predicted and are ages old.

 

Benjamin Franklin, a grand experimenter, is well known for bequeathing us a legacy of great quotes.

As the signers walked out of Constitution Hall, a woman (who has remained anonymous to this day) asked what type of government the American people were going to have. Franlkin famously replied, "A republic, madam, if you can keep it."

Here's another quote, in this case, a quote often incorrectly attributed to Franklin:

"When the people find they can vote themselves money, that will herald the end of the Republic."

I wish!

Wikiquote has had a standing challenge out, since 2007, to anyone to provide a source for this attribution to Franklin, but instead has determined only that the earliest attribution that can be found is dated 1988! (Hmmm ... the memory hole of corporate-media-cum-internet-GIGO not only can 'disappear' facts, it can regurgitate lies to take their place.)

This idea that democracy would be the death of the Republic has nothing to do with Benjamin Franklin, who decidedly was no monarchist, despite his popularity at the Court of Louis XVI of France! (Of course, in the last days of the ancien regime, we see that the creation of currency to benefit a politically favored few is hardly limited to democracies.)

In any event, where is the quote that really fits the occasion today?

We'll have to start it here, as a grand experiment ... devil

"When a majority of the Congress find that they can vote money to increase concentration of capital in the hands of themselves and their supporters, including foreign interests among those supporters, that will herald the end of the Republic." -- Benjamin Franklin

Quote and attribution are from an article by John Grover Roberts, Jr., and Antonin Scalia (National Review, October 1787)    wink

See seriously, Justice Stevens' Dissenting Opinion in Citizens United v. Federal Election Commission

See also, blog by Rick Hasen, 23 January 2010, at ElectionLawBlog.org, "Chief Justice Roberts' Concurring Opinion in Citizens United: Two Mysteries" --

http://electionlawblog.org/archives/015118.html

 

I hate to be political here at EP, but to me transparency is a fundamental economic issue, and I do bear a grudge! Moreover, I cite factual data to prove it!

See, Uncomfortable truth

 

[Links checked and functional as of posting]

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That time has arrived

2old4okeydoke quoted,
"When a majority of the Congress find that they can vote money to increase concentration of capital in the hands of themselves and their supporters, including foreign interests among those supporters, that will herald the end of the Republic." -- Benjamin Franklin
Could anyone argue that time has NOT arrived.
An ominous bit of fiction, Jack London's "The Iron Heel" would seem to be the road map the U.S. is using for domestic policy and trade policy. Read it again or for the first time if you haven't, it's a good read and prophetic.

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Odin

B. Traven

Yeah! Jack London is awesome!

Also check out B. Traven, if you haven't ...

The Death Ship (1934), originally Das Totenschiff (1926)

http://en.wikipedia.org/wiki/The_Death_Ship

Traven is best known for his The Treasure of the Sierra Madre (made into the film of that name by John Huston, starring Humphrey Bogart, winning three Academy Awards in 1949). It's unfortunate that Traven's real "jungle novels" series is so often overlooked ... such as ...

March to the Monteria (1933)

The novels describe the life of Mexican Indians in the state of Chiapas in the early 20th century, who are forced to work under inhuman conditions at clearing mahogany in labour camps (monterias) in the jungle, which results in a rebellion and the outbreak of the Mexican Revolution.

http://en.wikipedia.org/wiki/B._Traven
 

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Do What Australia Did.

Australia did a pure keynsian fiscal stimulus without tax cuts and avoided a recession. This is proven by the multipliers R.O. shows in the attached charts.
Tax cuts have the worst performance as stimulus and spending the best. Obama administration is now loaded with closet Republicans for economic advice. A 2011 version of Mellon, "Liquidate labor, liquidate capital,
liquidate all.", they just won't admit they are just like Mellon.

Missing from the charts and Obama's new plan is puting metal in the ground. Previous analyses give the traditional CCC, WPA, Rural Electrifcation stuff gives up to 5.0 as a multiplier. Best success was GM as a job generator, and it was denounced (there is a sidebar discussion about outsourcing,yes).

As a matter of principal, if you use public debt, you should insist on creating a long term stream of cash flows, lower risk to reward. Again, just put metal in the ground. Do what Australia did, avoid the recession.

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Burton Leed

That was there, this is here

First, Australia is an island -- an island continent with strict immigration rules that depend on the condition of full employment. So, they don;t have the illegal migration problem to anything like the extent we do. They don't have joblessness to anything like he extent we do. They don;t have homelessness to anything like the extent we do. They don't have an educational crisis to anything like the extent we do. They don't have a history, continuing, of unsupportable trade imbalances. They don't have a mortgage problem to anything like the extent we do. They don't have a homelessness problem to any thing like the extent we do. Second they have a middle class intact. Third, although oil isn't among them, except underwater offshore, they have mineral riches. Finally, they had almost no public debt when the recession began, a tradition of fairly well-managed government, everybody votes, and since they have long broken loose from the two-party system, instead of gridlock they get something new and different. Australian currency and basic national sovereignty and integrity are unquestioned, so there's no problem like ours where as soon as any entity  gets some disposable capital, it's disposed to China, or wherever, anywhere but here in USA, where the corpse has already pronounced itself DOA.

 

But with those differences in mind, the American people are long overdue for a course on the actual conditions in various countries, on the ground, around the world, with a mind to 'Where you see good, imitate it."

 

In conclusion, NO, we can't just do what Australia did and that's that! Differences are huge. But we can observe Canada, Australia, Japan, Sweden, Switzerland, the United Kingdom, Poland, Germany, Austria, Italy, Greece, China, Sri Lanka, Spain, Cuba, Argentina, Venezuela, Bolivia, Slovenia, Serbia, and many others ... and we can do that with a free mind. Not just as quaint stopovers for the proverbial ugly Americans, but as places where we learn how to do things differently, including things not to do.. We need to stop thinking in terms of the USA is greatest and no other nation can show us shit. isn't America today characterized by a tendency to do essentially the same thing over and over, always expecting different results?

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Wonderful Comment

It really makes the point come home about how many wrong roads we've taken. Your statement "Australian currency and basic national sovereignty and integrity are unquestioned" was like a punch in the gut because we've clearly ceded partial control of our sovereignty to Mexico. That's just an unarguable point.

I also agree with your suggested "cures": look around the world and imitate what others are doing that works (true healthcare reform that would take our costs down to Europe #1 candidate for that) and stop doing that same things that didn't work before.

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