Monday, March 22, 2004

Did George Bush send you a Dear John letter?

'Talk is cheap. It takes real money to buy whiskey.' That apparently goes for Social Security and Medicare as well as the War in Iraq--which, itself has cost $110 Billion as of April 4, 2004.

Check-it-out: page 2 of YOUR latest personal statement from the U. S. Social Security Administration. The President recently sent me two messages about family finances. The first came in that yearly statement each of us receives from the Social Security Administration.

It's the personalized report confirming how much our earnings have been in past years and very specific projections for monthly Social Security benefits at "early" retirement (now looking later) or "normal" retirement (ditto). For the first time in 30 years of looking at these reports, I now find the following warning in bold-faced type:

"Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2042, the payroll TAXES COLLECTED WILL BE ENOUGH TO PAY ONLY ABOUT 73% OF SCHEDULED BENEFITS." (Emphasis mine)

The second message was an appeal for contributions to Bush's 2004 Campaign. This package also included strong words about the President's leadership in reducing tax burdens on families like mine, and the usual promise of greater prosperity and security for all.

I found no mention of the following as we near the end Bush's 4-year term of office:

1) almost 50% increase in unemployment and LOSS of more than 2 million jobs in the US economy since his Inauguration--as compared with 23 million NEW jobs in Clinton's 2 terms;

2) rapid plunge from annual budget SURPLUS of $150 billlion to a crushing DEFICIT of $534 billion in the current fiscal year;

3) federal budget and tax policies set to produce cumulative deficits of $2.75 trillion over the next 10 years (Congressional Budget Office projection as of February 27, 2004);

4) this approaching budget trainwreck for Medicare as well as Social Security financing;

5) the benefit of those tax-cuts falling so disproportionately into the bank accounts of America's wealthiest families.

Speaking of the long-term outlook for Medicare and Social Security: a March 19 New York Times article (by E. L. Andrews and R Pear) warned of " estimates showing that the total gap between the cost of promised benefits and the revenues to pay for them is close to $50 trillion....Whereas the Bush Administration estimated last year that the long-term gap was $18 trillion over the next 75 years." Highlighting the recent sharp slide in the outlook for these vital programs, the NYT article noted: "In their report to Congress LAST YEAR (emphasis mine), the trustees of Medicare and Social Security...said Social Security had $3.5 trillion of 'unfunded obligations' over the next 75 years." ]

Now we grapple with a projected shortfall of $50 trillion--5 times the annual US GDP! This is an astounding shortfall. Not least for the approximately 70 million American families that must begin to prepare for those burdens. Of course, we don't know how many more (if ANY more) working families there might be in 35 or 40 years, let alone 75.

Yet if preparations begin now, for each of those 70,000 households the average annual set-asside to meet that long-term $50 trillion liability might itself require an additional $7,500 to $9,000 a year.

Saturday, March 20, 2004

Shortfall in Job Growth: Down 7.1 Million Jobs, and Counting!

When will it end? Many of us are NOT earning $200,000 plus and holding jobs with guaranteed life-time security. Nor are we enjoying the lush fruit of inheritances or multi-million dollar investment portfolios. If results matter, this graph (by the Economic Policy Institute) offers striking evidence that Bush's economic policy has in fact been a collosal failure. No matter the economic problem--this Administration has simply become more strident for tax-cuts further benefitting America's wealthiest families. Yet the Bush II Administration has shown an astounding indifference to the needs of ordinary working families. Unless soon reversed, these policies will cost us and our children dearly for decades to come.

Snapshot for March 15, 2004.

Jobs fall behind growth in working-age population
The U.S. economy would have generated 7.1 million more payroll jobs if job gains had kept pace with the growth in the working-age population since the recession began in March 2001. The shortfall in job creation has two parts: 1) the 2.4 million job decline since the last peak in employment in March 2001 and 2) the 4.7 million jobs needed to keep up with the growth in the working-age population since that point.

The working-age population is growing by 1.2% a year. That reflects both the large numbers of young people who are reaching working age and the continuing net immigration. Had payroll jobs kept up with working-age population growth since March 2001, the economy would be adding 137,000 new jobs each month. Every month that payroll jobs grow by fewer than 137,000, the jobs gap widens. In the past six months, job growth has averaged only 61,000, with February 2004 showing a gain of just 21,000 new jobs (see for a complete analysis of the February employment numbers). As a result, the jobs gap keeps widening.

Some have tried to rationalize the current low levels of job creation by arguing that there were too many jobs in March 2001. However, that argument does not make economic sense because March 2001 was a time of both low inflation and strong productivity. The bottom line is that, as the growth in the working-age population outpaces job growth, there are fewer employment opportunities for the growing number of people expected in the job market.

The number of payroll jobs reached a low point six months ago, in August 2003. Job growth has averaged only 61,000 a month in the last six months—far less than the 137,000 jobs a month now required to keep the jobs gap from widening. As a result, despite positive job gains, the jobs gap has grown from 6.6 million last August to 7.1 million in February 2004.

Source: EPI analysis of Bureau of Labor Statistics data.

This week's snapshot was written by EPI Research Director Lee Price.

Check out the archive for past Economic Snapshots.

Copyright © 2004 by The Economic Policy Institute. All rights reserved.

Saturday, March 13, 2004

Personal Bankruptcy = Family Values

There's much concern about family values now. It's not all about gender, marriage and civil rights. Some is about jobs, income, and money. Reuters on March 12 reported a record 1,660,245 personal bankruptcy filings in 2003. The US Census Bureau posts annual income data for just over 109 million households--with median annual income of about $42,409 in 2002. That would be 1 bankruptcy for every 66 households. The Reuters article puts the ratio at 1 for every 73 households. No matter: interest runs on and money comes due. Within a decade, it's quite possible that 1 of every 7 or 8 households in your neighborhood will have declared bankrupcy.

The Federal Reserve estimated total household private debt at the end of 2003 as $10.4 trillion, which would be average household debt of almost $68,000. With successive annual Federal Budget Deficits now running well over $500 Billion a year, total Federal Government debt has itself climbed over $7 Trillion.

We have no illusion that the burdens of carrying Federal Debt can be shared evenly among all 109 million households. In 9 million of those, families are contending with conditions of abject poverty. There are at least another 30 million in which occupants have their hands full coping with the difficult labor market, the health insurance crisis, kids at risk, and juggling payments for mortgage or rent, utilities, food, and transportation costs. For better or worse, the burden of government debt largely falls on the remaining--more fortunate--70 million households. Beyond whatever personal debt there is, each of these 70 million households carries roughly another $100,000 of long term Federal Debt. Likewise, when Federal budgets swing from annual surpluses of $200 Biliion to annual deficits of $500 Billion, that $700 Billion can be understood as another $7,000 added to the debt riding on each of those 70 million households.

The US economy has suffered an accumulated net loss of 2.6 million jobs since George W Bush was inaugurated just over 3 years ago. The short recession that took hold in the Spring of 2001 was officially over in November of 2001. Yet on March 5, 2004--at least 27 months after the end of that recession--we received the shocking report that just 21,000 net new jobs were created in the US economy during the month of February. Most of that slim gain reflected expansion in public sector jobs and it was far below the expectations of 125,000 or more new jobs.

Not since Herbert Hoover and the Great Depression---over 70 years ago--has ANY President completed a 4-year term without being able to report a single new job being created in the US labor market. The Bush II record--and it truly is record-breaking--is one of showing an average monthly LOSS of 70,000 jobs. That also contrasts most sharply with the record of job growth in the preceding Administration. Between 1993 and 2000 there were average job gains of more than 200,000 per month. There were more than 20 million new jobs created by the end of Clinton's second term.

George W Bush's jobs record pales even in comparison to that of Eisenhower's first term in the mid 50's as well as the 4-year term of Bush, Sr., when there were also very weak performances in terms of job growth. Yet even then--among the most disappointing periods for job growth in the last 50 years--there were at least some new jobs created.

Thursday, March 11, 2004

Warren Buffet on Bush Taxes and Class Warfare

In the Spring letter to investors in Bershire Hathaway, Mr. Buffett apparently continues to rebuke Bush for tax policies that disproportionately benefit the wealthy. Or so I've heard: the stock's a little rich for my blood, with the "B" shares going for about $3,050 each!

from "Tax breaks for corporations -- and their investors, particularly large ones -- were a major part of the administration's 2002 and 2003 initiatives," Buffett said. "If class warfare is being waged in America, my class is clearly winning." "Many large corporations pay nothing close to the stated federal tax rate."

Hey, why work?

Labor taxed at 45% vs. 15% for capital

For a household comprised of one or more wage-payroll or salaried employees (say, those earning between $40,000 and $87,000), total Federal payroll taxes will amount to approximately 45%. That would include: 1) Federal Income Tax at 27%; 2) the employee's contribution to Social Security and Medicare of 7.65%; 3) the empoyer's Social Security and Medicare "match" of 7.65%; and 4) the employer's contribution to Unemployment and Workmen's Comp of approximately 2.35%.

If--like George W Bush, Dick Cheney, John Snow or Don Rumsfeld, for example--you were fortunate enough to be able to derive that sort of household income entirely from qualified dividends and long-term capital gains on a substantial investment portfolio, you would be most grateful for a tax rate that is now approximately 15% on THOSE sources of income. Yes, it IS true that for the the minimum wage employee this combined federal payroll tax will be "only" about 33% in total. So these most poorly paid workers will be paying "only" about 120% MORE tax(rather than 200%!) on income from wage payroll than their much more fortunate counterparts living in the wealthiest of American households.  

Yes indeed, this IS as good as it gets for those who truly are already in the investor class. But it is a horrible deceit and a cruel joke to suggest that we are all in that class, or that even any substantial number of households do have that $1 or $2 Million in investment assets that it takes to replace the need for convential earned income.

This is macabre: yet with the Bush Administration's almost unprecedented failure at net job growth for our economy,  the dismal fact of 2.2 million jobs lost in little more than 3 years, clear prospect of more outsourcing as well as declining hourly wages and benefits for those who are still employed, the primary job stimulous I see (in the slashing of taxes on investment income for our wealthiest households) is in the business of selling multi-million dollar life insurance policies. Certainly, for the average American household, it is becoming a lot more difficult to earn enough disposible income for savings and investment, for that "nest egg" for the security of your own family, or for that modest "leg-up" that you would hope to pass on to the next generation. Certainly, it will not be done in that most old fashioned American way--"by earning it."