Susan Pendergrass speaks with Andrew G. Biggs, senior fellow at the American Enterprise Institute, about the Social Security trustees’ latest report and what it means for the program’s future. They discuss the projected 2032 insolvency of the retirement trust fund, why the trustees’ birth rate assumptions may be too optimistic, the proposed Moreno-Warren plan to eliminate the payroll tax ceiling, the Cassidy-Kaine plan, and why pension experts oppose it, what would actually happen if the trust fund ran out, and more.

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Episode Transcript

Susan Pendergrass (00:00):
I feel fortunate to have grabbed some of your time. Andrew Biggs from the American Enterprise Institute, I appreciate you coming on to talk to us. Social security has been nothing but in the news recently, and you know more than anyone else. So thank you for taking the time.

Andrew Biggs (00:14):
That’s why I’m so cheerful. The more you know about Social Security, the happier you are. But thanks for having me, Susan. It has been busy. I’m really happy to be with you today.

Susan Pendergrass (00:16):
I’m in my sixties. I see something about Social Security running out of money and I pay attention. So just to bring us all up to speed: in the last week, there was a news flash that Social Security is going to run out of money sooner. What does it really mean?

Andrew Biggs (00:39):
Every year the Social Security trustees, which is mostly members of the cabinet, the Secretary of the Treasury, the Social Security Commissioner, and so on, come out with a report projecting the program’s financial health, both in the short term and the long term. That happens every year, and it’s been getting worse every year. In this year’s report, they projected that the retirement trust fund will go insolvent, or run out of money, in 2032. They also projected a significantly larger long-term funding gap in the years thereafter, and this is worth explaining.

When the trust fund runs out, it doesn’t mean there’s zero money to pay benefits. As long as we’re paying a trillion dollars a year in payroll taxes, there will be money to pay benefits. But when the trust fund runs out, it means benefits will be cut, and their projection is somewhere around 22%. The size of that long-term funding gap dictates how big the cuts are going to be in the years thereafter. The trustees lowered their projections for birth rates, and they found that the One Big Beautiful Bill has worsened Social Security’s finances. A variety of things made this long-term funding gap worse. It’s really hard to paint a happy picture. The trust fund can be running out in about six years, and the funding gap and the benefit cuts in years thereafter are going to be larger. It’s a sobering picture.

Susan Pendergrass (02:16):
I’m not trying to pile on, but I think I saw that they extended the time when they expect birth rates to bounce back. Is that true? Because I have not seen anything anywhere, and I’ve spoken to some demographers, to suggest birth rates are ever going to bounce back.

Andrew Biggs (02:35):
Here’s the interesting thing. If you look at the Congressional Budget Office or the US Census Bureau, right now the fertility rate is about 1.6 children per woman on average, and both the CBO and the Census project that’s going to remain pretty much steady, declining a little bit over coming decades. Social Security had a very different picture. As of last year, they thought the birth rate, which is 1.6 now, was going to immediately start rising and go back up to 1.9 children per woman in the next several decades. That makes Social Security’s finances better. More kids being born means more people paying into the system. What they did in this year’s report is moderate a bit on fertility. They said, okay, it’s not going to rise back to 1.9, it’ll rise back to 1.75. So they are still over-optimistic. I’ve talked to some demographers and economists who’ve really focused on the birth rate, and they described the trustees’ assumptions as, quote, fanciful, meaning they just weren’t plausible. Now they’re somewhat more plausible, but they still tend

Susan Pendergrass (03:32):
Okay.

Andrew Biggs (03:48):
to be more optimistic than other agencies. And to me, frankly, this is a concern. You really want the people who are the scorekeepers, the umpires, to be playing it as straight as they possibly can. We know that these guesses are going to be wrong because this stuff is impossible to predict with certainty, but most demographers think the best guess is we’ll stay around 1.6 going forward. You’ve seen a decline, and a good predictor of birth rates is religiosity, the level of religious belief in a country. The US has typically been much more religious than Western Europe, and that’s played into fertility. There has been a big decline in religious belief, particularly among younger Americans, along with all the other pessimism you see among younger people. When people are pessimistic, they tend not to have a lot of kids. So the best guess is we’re going to stay about where we are.

I wrote something the other day saying the bad news in this trustees report is even worse than last year’s, but it could have been even worse. They project a long-term funding gap above 4.4 percent of payroll. What that means is if you took the 12.4% payroll tax today and raised it immediately and permanently by 4.4 percentage points, from 12.4 to 16.8, that would in theory keep the trust fund solvent for 75 years. But a better guess would be a funding gap of around 4.8 to 5 percent. This is real money. For years, people on the left have said, well, okay, we know Social Security has a solvency problem, but it’s a manageable issue. They were saying that when the funding gap was 2% of payroll. Now you’re looking at four to five percent. That’s a lot of money, at a time when a lot of other things are making claims on the budget. We have some difficult choices to make and we really have to start thinking hard about this.

Susan Pendergrass (06:09):
Okay, so what about this idea that’s been floated in the last week of getting rid of the payroll cap? First of all, explain the payroll cap, and then this idea of getting rid of it.

Andrew Biggs (06:17):
Sure. Social Security has a 12.4% payroll tax, half paid by you and half paid by your employer. That applies only to wages up to $184,500. That’s called the payroll tax ceiling, or the tax max. That dollar figure goes up every year, but this year it’s $184,000. You only pay taxes on those wages, and you also earn benefits only on those wages. People say, well, Bill Gates doesn’t pay more taxes than that. But he doesn’t earn any benefits either. So you’re capping both the taxes and the benefits.

To fast forward a little bit: there’s an op-ed in the Washington Post this week from Senator Bernie Moreno, a Republican from Ohio, and Elizabeth Warren, a Democrat from Massachusetts. They say it’s just common sense to eliminate that cap and tax all earnings for Social Security. The interesting thing is how uncommon that would actually be. Our payroll tax ceiling is $184,000. Almost every other country has a ceiling on their payroll taxes for their pension system, and in almost every other country that ceiling is lower. In Canada, you only pay taxes and earn benefits up to around $60,000 in earnings. In the UK it’s about $70,000. In Germany it’s about $70,000. We are already an outlier for how high up the income ladder we tax people. To eliminate the cap entirely is a big deal. It’s effectively a 12 percentage point increase in the top marginal tax rate. I pulled an example of somebody living in New York City. A high-income person already pays 37% in federal income taxes, plus regular Medicare taxes, the additional Medicare tax, state taxes, and city taxes. If you add another 12 percentage points on top of that, their marginal tax rate would be in the mid-60s. And that’s before we’ve fixed Medicare or done anything else. The federal budget is still broke, and you’ve taxed these people as high as you possibly can. So these things that look like common sense, why don’t we just tax everybody,

Susan Pendergrass (08:37):
Right, right.

Andrew Biggs (08:46):
look, there are reasons for that.

Susan Pendergrass (08:49):
And were they suggesting that if I make $300,000 and I pay my 6.2 percent, totaling 12.4 with my employer, on my entire salary, that my Social Security benefit one day would be higher? Are they talking about capping the benefit or just getting rid of the cap on contributions?

Andrew Biggs (09:06):
They haven’t been very specific. They say Social Security would continue to be an earned benefit, which kind of implies you would continue to earn benefits on the additional taxes you would pay. Let’s say if we uncap the payroll tax and base your taxes on your total earnings, you’d also base your benefits on your total earnings. What you get then is, okay, you’re getting all this money from people in the short term, but you have to pay them higher benefits in the long term. That offsets some of the savings. And this morning I was running some numbers looking back to the 1970s. We had a huge run-up in benefit levels from Social Security in the 1970s. The benefit formula we have today is not the one FDR invented. It really happened in the 1970s, where they jacked up benefits in a really foolish way, and then to help pay for it, they increased the payroll tax ceiling. Right now you pay taxes on earnings up to $180,000. If we had just kept the tax max from 1970 and indexed it to wages, it would have been only $95,000. So they essentially doubled the wages on which you pay Social Security taxes. But what happens is they also doubled the wages on which people earn benefits. I’ve highlighted the point that if you have a high-income

Susan Pendergrass (10:38):
Mm-hmm.

Andrew Biggs (10:43):
couple retiring today, they could get almost $100,000 in total benefits, which is absurd. There’s no reason a government program should be paying anybody that amount. If you want that kind of income in retirement, you save more in your 401k. It’s better for you, better for the economy. But it was a result of this short-term step they took in the 70s. They said, hey, we raised benefits too high, let’s jack up the tax max. And they didn’t worry about the fact that in the future you’d have to pay benefits on that. Well, the future is today.

Susan Pendergrass (11:05):
Okay.

Andrew Biggs (11:13):
Now we’re broke again, we need extra money again, and these guys say, well let’s just jack up the tax max. But then you’ll pay extra benefits in the future. It becomes this chasing-your-tail kind of thing.

Susan Pendergrass (11:16):
Yeah. Yeah.

Andrew Biggs (11:25):
And the problem when you do it is there’s no country on earth paying $100,000 a year from a social insurance program, except for us. And the reason we do is these stupid historical decisions. If you’ve got this high-income couple in the US retiring today, they can get almost $100,000 from Social Security. If they lived in Canada, they’d get like $35,000. And that’s perfectly fine. Nobody’s starving to death in Canada in retirement. They just save more on their own.

Susan Pendergrass (11:35):
I’ll say.

Andrew Biggs (11:55):
The irony is that we think of ourselves as a free-market, small-government country, and our Social Security program is enormous, primarily because we’re paying benefits to people that other countries say, yeah, we don’t need to pay benefits to these guys.

Susan Pendergrass (12:11):
And yet people say, I put my money in, I get my money out.

Andrew Biggs (12:14):
Yeah, and I understand it. When I say we shouldn’t be paying $100,000 a year to a high-income couple, you get the email saying, well, I paid in. And if you paid in, you feel you have this moral claim on benefits. The problem is Social Security is still broke. We still need higher taxes or lower benefits. The idea that you’re just going to get your full benefits with the taxes you paid doesn’t work because the system can’t afford to do it. So you have to make the choice: do I want to pay higher taxes or get lower benefits? I’ve got to pick my poison. Most high-income people would prefer to get lower benefits. They care more about their taxes than their benefits. But people are still living in this dream world where this system, which is $30 trillion in the hole, is somehow going to pay them everything they’ve been promised and just screw somebody else. Everybody thinks they’re the guy who’s going to get everything and somebody else is going to get screwed.

Susan Pendergrass (13:14):
Yeah. I definitely hear people saying today, maybe I should go ahead and take it early and then I’ll get grandfathered in and my benefits won’t get lowered.

Andrew Biggs (13:26):
It probably won’t make a difference. In general, the Social Security benefit formula works based on your birth cohort, the year in which you’re born, not really the year in which you claim benefits. And people who are going to do Social Security reform understand the incentives. They don’t want to make it easy for people to game the system. So Social Security reform will probably work itself out in such a way that

Susan Pendergrass (13:42):
Right.

Andrew Biggs (14:03):
you can’t get some big advantage by claiming early. I could think of some conceivable possibilities, but I still would not encourage people to claim early.

Susan Pendergrass (14:14):
Okay, I want to talk about two more things I read in the last week. One was a letter from Tim Kaine about his idea with Senator Cassidy. What’s that idea for fixing it?

Andrew Biggs (14:24):
The interesting thing is people say Social Security reform has to be bipartisan. So we have two bipartisan ideas. We have Moreno and Elizabeth Warren, a Republican and a Democrat. They’ve got one idea, eliminating the payroll tax ceiling.

Susan Pendergrass (14:39):
Third rail.

Andrew Biggs (14:49):
Cassidy, a Republican from Louisiana, and Tim Kaine, a Democrat from Virginia, they’ve got a bipartisan plan. And guess what? Their plan is also terrible. If there’s any lesson from this, it’s that bipartisan doesn’t mean good.

Susan Pendergrass (15:00):
Bipartisanly terrible.

Andrew Biggs (15:04):
Yeah. Look, ultimately Social Security reform is going to have to be bipartisan, given the way the political system works. On the other hand, there is some lesson that if both Republicans and Democrats can agree on something, it might be a terrible idea. With Cassidy and Kaine, they are explicitly, and Cassidy said this, solving a political problem. The political problem is that neither Republicans nor Democrats want to vote for either tax increases or benefit cuts. You’d think Democrats want to raise your taxes and Republicans want to cut your benefits. The reality is they don’t want to do either of those things because they realize both are politically unpopular, which is why we’ve gone 40 years literally doing nothing. So their solution is that we don’t have to make these difficult votes. Instead, the federal government will borrow about $2 trillion, invest that money

Susan Pendergrass (16:02):
Tough.

Andrew Biggs (16:04):
in stocks and private equity, high-risk, high-return stuff. Then they claim they’re going to hold this fund for 75 years so it can build up value. In the meantime, when Social Security’s trust fund runs out in 2032, the federal government will borrow against the assumed gains on this investment fund.

Susan Pendergrass (16:06):
Right. Mm-hmm.

Andrew Biggs (16:29):
They say the borrowing will be at a lower rate because it’s the federal government. And they say after 75 years, all the gains in this investment fund will pay back all the borrowing and we’re all good. And let me count the ways there are problems with that. If you work at the state level,

Susan Pendergrass (16:45):
It’s just kicking the can.

Andrew Biggs (16:52):
state-based think tanks almost know more about this than federal people. A lot of underfunded state pension systems do things called pension obligation bonds. Their pension system is underfunded, they don’t want to raise contributions or cut benefits, so they borrow and invest in the stock market and hope it works. The pension obligation bond is the hallmark of a poorly funded, poorly run pension system. Think New Jersey, Illinois, things like that.

Susan Pendergrass (17:21):
Yeah.

Andrew Biggs (17:23):
There’s a national group of state budget officers that has come out and basically said as an institution, don’t do this. Borrowing for your pension is a bad idea. So it really is fitting for the times that the Cassidy-Kaine plan says, let’s take this worst idea from state and local government

Susan Pendergrass (17:45):
Yeah.

Andrew Biggs (17:47):
employee pensions, which has been condemned as bad practice, and put it on steroids and do that for Social Security. And what it really gets to is they just don’t understand the finances of it. And to be frank, they won’t listen. They have talked to every pension expert I know, and this Social Security world is pretty small. We all know each other on both sides. We may not agree on everything. Literally every pension expert I know says this is a terrible idea.

Susan Pendergrass (17:54):
Yeah.

Andrew Biggs (18:17):
But their political considerations are more important than policy, and that’s the problem with all of them.

Susan Pendergrass (18:24):
I mean, it feels free. They’re basically saying it’s like a timeshare. It just feels free right now. We just borrow the money. Okay, so

Andrew Biggs (18:31):
It’s been pointed out to them that if you can fund Social Security this way, you could fund the entire federal government this way and never collect any taxes. At one point Senator Cassidy was quoted in a newspaper article saying, well, yeah, sure, in theory you could. And I’m like, if something implies there’s a free money machine, maybe you need to question your assumptions.

Susan Pendergrass (18:38):
Sure. Okay.

Andrew Biggs (18:54):
I could give you a whole variety of reasons why this doesn’t work, but one macro point that’s come to me: I’ve been doing Social Security for a long time. I worked in the Bush administration in 2005 when they tried and failed to do Social Security reform. One of the problems we face today is that your elected officials understand Social Security policy much less well than they did 20 years ago. They just don’t understand how the system works. Going back to the Moreno-Warren idea of applying the payroll tax to all earnings,

Susan Pendergrass (19:22):
Yeah.

Andrew Biggs (19:37):
okay, you’re adding 12 percentage points to your top tax rate. There’s a reason Sweden and France and others don’t do this anymore. They used to have incredibly high tax rates. They don’t now. We would end up in many cases with a higher tax rate than most European countries. We have some philosophical dedication to small government and things like that. They don’t. And so if they’re not doing it,

Susan Pendergrass (19:43):
Yes. Yeah, yeah.

Andrew Biggs (20:02):
it’s because there’s a practical reason this isn’t a good idea. The same applies to wealth taxes. That’s been tried in Europe. They’re like, yeah, we’re not doing that anymore because it doesn’t work. But your average senator now

Susan Pendergrass (20:14):
It is happening around the country, the billionaire tax. What happens in 2032 if no one is either brave enough or smart enough to take this on in the next six years?

Andrew Biggs (20:17):
They’re just not aware of these policy issues, and that’s a real problem. It’s like having a guy fix your car who doesn’t know how to fix cars. 2032 is the date. If you have a recession, it might be 2031. It’s not certain, but it is certain it’s happening soon.

Susan Pendergrass (20:47):
Yeah. Okay.

Andrew Biggs (20:53):
There’s a literal reading of the law, which is that Social Security can’t pay out benefits it doesn’t have dedicated resources for. Once the trust fund runs out, the only dedicated resources are mostly the payroll tax, plus a little bit of money from income taxes levied on retirement benefits. And those were cut as part of the One Big Beautiful Bill. So if the trust fund runs out, they’d have to rely on the money they have on hand, which implies around a 22% benefit cut.

A lot of times people assume that benefit cut has to be across the board. If you did it that way, you’d throw a lot of people into poverty. I did some work a year or so ago with a lawyer in DC named Kristen Shapiro, and what we found is that the legal precedent shows the executive branch, meaning the president working through the Social Security Commissioner, would have some discretion. What we found is you could maintain full benefits for about 50% of people, the poorest 50% of seniors, and then cap benefits above that. If you cap the maximum benefit at about $24,000 per year for a single person or $48,000 for a couple, that is enough to make Social Security solid without raising taxes. So the point is simply you have some discretion.

The reality is Congress isn’t going to allow big benefit cuts, for political reasons. On the other hand, are they willing to have the size of tax increases needed, all in one go, to keep Social Security paying full benefits? I don’t think they want that either. So the reality is probably they’re going to borrow a lot of the money. And that’s where you get to the issue of how much more borrowing the financial markets will swallow. We effectively borrow from the public to repay the Social Security Trust Fund, but there’s an end to that. You say, okay, 2032, we have to do something. We have to raise taxes or cut benefits. If in 2032 the stated policy of the federal government is, well, we’re just going to keep borrowing to pay Social Security even though we have no prospect of paying it back, you wouldn’t blame some big market players for saying, yeah, I’m out, because you don’t want to lend money at low interest rates to someone who says they can’t pay it back. Then you start getting a couple of things. One is more federal borrowing squeezes out capital in the rest of the economy, and so interest rates naturally rise.

Susan Pendergrass (23:18):
Right.

Andrew Biggs (23:31):
But then there’s a second element: if you’re afraid the federal government can’t pay you back, over and above that natural increase in the interest rate, you’d apply a risk premium to treasury debt. You’d say, look, Treasury is not this rock-solid investment anymore. It’s more like a junk bond, or like borrowing from Illinois, and you make them pay a premium. That’s going to drive up

Susan Pendergrass (23:43):
US government borrowing. Yeah, yeah, yeah.

Andrew Biggs (24:01):
interest rates, and that makes it tougher not just for the federal government but for everybody. If you want to buy a car or a house, all your interest rates rise. There’s also going to be real temptation to inflate away the debt. The federal government doesn’t want to default on its debt, but

Susan Pendergrass (24:24):
Yeah, yeah.

Andrew Biggs (24:25):
historically the way you deal with this is inflation. Think about all the debt we took on during COVID, shoveling money out the door to everybody, and then we had massive inflation after it. A lot of those people who bought treasury debt didn’t get a good deal, because if you get 20% inflation on

Susan Pendergrass (24:34):
Absolutely. Yeah.

Andrew Biggs (24:47):
a treasury bond with a nominal fixed interest rate, that’s a real problem. So inflation becomes increasingly tempting. You look at this scenario and you’re like, can’t anybody here play this game? Every other country is not going bankrupt. We just have to do what they do.

Susan Pendergrass (24:51):
Yeah, yeah. So could we, if we really got our heads around it and started today or next year, incrementally raise the 12.4%, or incrementally get people used to lower benefits after a certain income or wealth level?

Andrew Biggs (25:18):
Sure. Yes. The way I think about it, there are two ways people think about it: the wrong way and my way. The wrong way is, let’s just pick from this menu of options to make Social Security solvent. We can raise the payroll tax a bit, raise the retirement age a bit, cut cost-of-living adjustments a bit, raise the tax cap a bit, and do these things until the system is solvent.

Susan Pendergrass (25:34):
Yes. Yeah.

Andrew Biggs (25:54):
That’ll get you a solvent program, but it won’t be a program that particularly works very well or is good for the economy. A more effective way is to ask, what do we want this system to do? If you talk about Social Security reform, what you hear is that it’s a social insurance program, a safety net, an anti-poverty program. Okay, it has to do that. And that part is really very cheap, because we don’t literally have that many poor seniors, their benefits aren’t very high, and it’s not a problem to maintain benefits for low-income seniors. When you ask what Social Security should do, nobody is saying we need to be paying high-income seniors $100,000 a year. There’s no public purpose for it. Nobody thought it out in advance. It was simply an unintended consequence. So if you’ve got things that are really costing a lot of money and have no public purpose, and those people can save for retirement on their own, you start scaling that back. The distinction I’m making is between policy changes simply for the purposes of keeping Social Security solvent, and policy changes for the purpose of making Social Security do what it needs to do, the real public purpose, and not doing things that serve no public purpose. My point is the things I’m talking about are things you should do whether Social Security is insolvent or not.

I’ll give you an example: Australia’s retirement system. Australia is a lot like us, not particularly more conservative or liberal, just sort of normal. Their Social Security program essentially is targeted at eliminating poverty in old age. It’s actually a better safety net than Social Security provides, but the benefits decline down to zero once you get above the poverty level. And to help people above that level save for retirement, everybody is enrolled in a 401k-type account. What that says is, if everybody’s participating in retirement plans as they should, the government’s job becomes easier. Their Social Security system costs about two percent of GDP. Ours costs about six percent. It’s a third as costly, provides a better safety net, and it comes because they’re actually thinking about what they’re doing.

Susan Pendergrass (28:18):
Mm-hmm.

Andrew Biggs (28:26):
We’re literally not thinking about what we’re doing. There’s a saying in business: the worst reason to do something is because we’re already doing it. That is literally how Social Security policymaking works. Nobody knows why our benefit formula is what it is or why the tax max is what it is. It’s all just stuff we inherited from the 1970s from people who were not in any way thinking clearly about what they were doing. It was people in the 70s trying to win elections, and we end up with the bag.

Susan Pendergrass (28:52):
Speaking of 2005, there was an attempt to offload a small portion of people’s contributions into the market, right? That failed.

Andrew Biggs (29:09):
That was the Bush proposal. I was in the White House then, kind of in a number-cruncher role, so I knew that stuff pretty well. I did a lot of events with President Bush around the country. When we came up on the 20th anniversary of Bush’s proposal in 2025, I started thinking to myself, what if his plan had passed? What would have happened? So I built a model. Back then they were saying, okay, you’re going to have some reductions in traditional Social Security benefits for middle and high-income people, and then you’re going to have a personal account where you can invest part of your existing payroll tax in stocks and bonds. The total benefit you get at retirement is a combination of those two. People were speculating. Well, we don’t know what the stock market’s going to do. But 20 years later, we’ve got some data, so let’s just see what happened. The results were that for people

Susan Pendergrass (30:01):
Now we do.

Andrew Biggs (30:07):
retiring today, low and middle-income people would have had higher total benefits by a little bit. The very highest-income people, their benefits would be down by a couple percent because the cuts to their traditional benefits would be larger than the gains from their personal account. But even they would be fine; it’s not a big deal. Going forward, it looked like people would do a little bit better with the Bush plan than with the traditional system. But here’s the important thing: the traditional system is broke. We just talked about how it goes broke in 2032, with huge deficits. The Bush proposal wouldn’t have made Social Security totally solvent, but it would have addressed half or two-thirds of the long-term funding gap. So you’d get a system that would have paid you benefits around the same as, or maybe a little bit better than, Social Security, but would be in much more solid financial shape. Today the times are different, and I don’t think personal accounts are really viable. But the point is, if they had done something back then, everything could be easier today. But members of

Congress were just too afraid. Republicans were afraid of taking the political hit. For Democrats, it was too tempting to give the political hit. They knew they had to do something, but they couldn’t swallow hard and say, look, let’s just go in on this thing together. They didn’t want to give Bush the win because by that point Iraq was going badly and they really didn’t like him. So they beat him up. But the problem is Bush served his term and is happily retired in Texas. The people who really got screwed were the ones who depend on Social Security, because we didn’t fix it. And you just hope that’s not what we do again.

Susan Pendergrass (31:42):
Yeah. Somebody not us in 2045 could be having the same conversation, right? Like, if only in 2025 or 2026 we’d gotten serious. And I do think people mix up the trust fund with the whole program. A lot of people think all of Social Security is going to be bankrupt in six years, versus the reality that we’re still taking in a trillion dollars, we just need about 22% more than what we’re taking in.

Andrew Biggs (32:14):
Yeah. If you go back 20 or 25 years, there were all these arguments about whether the trust fund is real or fair or whatever. The trust fund is essentially IOUs written from one side of the government to the other. I thought at the time the trust fund is not real in an economic sense. It doesn’t make it easier for the government to pay Social Security benefits. It is a pledge that we will pay them, but it doesn’t make it easier to pay them. But here’s the interesting thing:

Susan Pendergrass (32:25):
Right. Al Gore. The lock box.

Andrew Biggs (32:50):
if having a trust fund doesn’t make it easier to pay benefits, then not having a trust fund doesn’t make it harder. The trust fund runs out, we still have taxes coming in, we can still pay 80% of what is owed. If we retarget that, you can maintain the safety net. It’s not like you’re totally insolvent or broke. All those long debates over whether the trust fund is real get resolved because the trust fund itself is gone in six years. So that doesn’t matter very much anymore. But I do hope that, as you said, we’re not in 2045 looking back on a solution of just borrowing $500 billion a year or whatever it’s going to be. People in 2045, when the federal government is bankrupt, the dollar is dropping, and all these financial crisis things we think only happen to other countries are happening to us, they would look back and say, I wish those people were more responsible. The Social Security problem, in a sense, if we went back 25 or 30 years ago, was a manageable problem. The real issue is not the demographics or the benefit growth or whatever. The real issue is just poor stewardship of this program by Congress and respective presidents. It is absolutely a governance problem. It is not a problem of economic or demographic fundamentals. All of that can be handled.

Susan Pendergrass (34:19):
Everyone wants to be Santa Claus, right? No one wants to be the Grinch.

Andrew Biggs (34:22):
It’s very true, but leadership is about giving people bad news. Good news kind of tells itself. Bad news has to be told and people have to be convinced that this is going to hurt, but we’ve got to do it. And we just didn’t have the willingness. President Clinton in the late nineties tried to do some stuff, but he didn’t deliver much bad news because we had surpluses. President Bush was willing to tell people, okay, look, you’re not going to get every penny you’ve been promised. Beyond that, the level of leadership has been very poor.

Susan Pendergrass (35:01):
Hasn’t been good. All right, well, next year when the trustees report comes out, come back and give us more bad news.

Andrew Biggs (35:09):
Yeah, until then, things are looking up. But no, it’s something people want to be aware of, and I think that’s the key thing.

Susan Pendergrass (35:13):
Well, I think one of the more important things you said is that no one understands it. People are upset and arguing over something they don’t understand the mechanics of. I do know people who think they have an account with their name on it that their Social Security taxes went into, and they’re just going to start taking the money out.

Andrew Biggs (35:23):
I have some bad news for that. Your taxes go into Social Security and go straight out the door to pay for your grandmother’s benefits. If you want to know where your taxes are, they’re in your grandmother’s bank account. So go ask her.

Susan Pendergrass (35:45):
That’s right. That’s right. All right, thank you so much. I really appreciate the time.

Andrew Biggs (35:51):
Thank you, Susan. It’s a pleasure to be with you.

Produced by Show-Me Opportunity

The post The Social Security Crisis Is Worse Than You Think with Andrew G. Biggs appeared first on Show-Me Institute.

Moving from a system . . . [that has] 1000 of something to one of something sounds a lot like a monopoly, and monopolies don’t always work in consumer interests.

The sheer cost of a Medicare for All program would dwarf our current federal spending levels and require massive new taxes on Americans. The Atlantic reports:

The Urban Institute, a center-left think tank highly respected among Democrats, is projecting that a plan similar to what [two candidates] are pushing would require $34 trillion in additional federal spending over its first decade in operation. That’s more than the federal government’s total cost over the coming decade for Social Security, Medicare, and Medicaid combined, according to the most recent Congressional Budget Office projections.

In recent history, only during the height of World War II has the federal government tried to increase taxes, as a share of the economy, as fast as would be required to offset the cost of a single-payer plan, federal figures show. There are “no analogous peacetime tax increases,” says Leonard Burman, a public-administration professor at Syracuse University and a former top tax official in both the Bill Clinton administration and at the CBO. Raising that much more tax revenue “is plausible in the sense that it is theoretically possible,” Burman told me. “But the revolution that would come along with it would get in the way.”

Health care providers, health insurers and pharmaceutical companies are not always “good guys” in our health care system, but they compete with one another, which serves consumer interests. Policymakers should go much further in compelling such competition and preventing these industries from leveraging government for their own interests. But Medicare for All goes in the very opposite direction—monopolizing control of our health care system, reducing choice and trusting government to provide these services instead.

It was a bad idea last year. And it is still a bad idea this year.

The post “Medicare for All” Remains a Terrible, Terrible Idea appeared first on Show-Me Institute.

GDP Growth during the Expansions of the Post-WWII Period

Source: CRS calculations based on data from the Bureau of Economic Analysis (BEA).

Note: Economic expansions as identified by the National Bureau of Economic Research.

This result is not just bad—it is catastrophic. The average American should not be wondering if his income is a bit above or below 2007 levels. Just by historical averages, the average American should be 20% better off than in 2007. And this slow growth is settling in as a permanent new-abnormal.

I believe the root cause of abysmal growth is the huge tax increases imposed by President Obama and Congress since 2008. The most harmful were the increase in the capital gains tax from 15 to 20 percent, the increase in top bracket income from 35 to 39.6 percent, and the new tax of 3.8 percent on investment income in the Affordable Care Act (ACA). The massive increase in regulatory burden through the ACA and Dodd-Frank bills are also crushing, but unfortunately are harder to measure.

The three tax increases mentioned above (plus higher state and local taxes) directly lower expected returns on all investments. Our government grabs the fruits of investment and then is puzzled when businesses do not invest. This causes billions of dollars of investment projects to come off the table.

Weak investment is the signature feature and cause of the abysmal "recovery" under President Obama. The aggregate of all investments in the United States is Net Private Domestic Investment (NPDI), computed by the Bureau of Economic Analysis. Relative to GDP, NPDI averaged 7% per year from1960 to 2008. The average was 7 to 8 percent from 1960 to 1990, and 6.5 percent in the Clinton and George W. Bush years. However, for the Obama years NPDI was an astoundingly low 2% of GDP!

In every year of Obama’s presidency but 2015, NPDI was worse than in any year from 1960 to his inauguration. This isn't bad luck. If nothing changed in the economy, the likelihood of having a period as bad as Obama’s just by chance would be 1 in 1000.

The numbers for GDP and NPDI are interesting, but they’re still just lifeless statistics. The human toll is terrible, taking the form of millions of Americans who can’t find jobs or can’t make ends meet in the jobs they do have.

Dismal investment levels are the predictable result of taxing investment and income at high rates. This terrible economic performance will continue until income and investment taxes are slashed. The government can still raise needed revenue with a broad-base approach, eliminating all the special deductions and credits and allowing very low rates.

On the other hand, maintaining the current high rates will entrench lackluster investment and stagnant incomes and trap far too many Americans in a bleak economic future.

The post The Dismal Recovery appeared first on Show-Me Institute.

This February, Doug McMillon – the current CEO – agreed to raise the hourly wage at Wal-Mart to no less than $9 an hour in April and to $10 an hour (or 33 percent above the current federal minimum wage) in early 2016.

How is the sharply elevated internal “minimum wage” working out for the world’s largest retailer and (by a wide margin) the nation’s largest private employer?

So far, not at all well.

In announcing the company’s third-quarter results this Tuesday, McMillon acknowledged that the wage hike had been “by far the biggest driver” in causing a 13.3 percent reduction in corporate earnings over the first nine months of its current fiscal year (ending on Jan. 31, 2016). Higher wages have added $1.2 billion in annual costs in this fiscal year and will add another $1.5 billion in costs next year.

Net income at Wal-Mart hit an all-time high of $17.0 billion in calendar 2012 (fiscal 2013, ending in January 31, 2013). According to Value Line estimates, it will drop to $14.8 billion at the end of this year and to $12.6 billion next year, which would be the lowest annual earnings for Wal-Mart in a decade.

That is no big deal to critics like Robert Reich, who served as Secretary of Labor under President Clinton. Reich pointed to Walmart and McDonald’s in a petition that he launched on MoveOn.org in 2013 urging the biggest employers to increase wages so workers can finally “get a fair share in this economy.” “Your typical employee is now earning $8.25 to $8.80 an hour,” Reich wrote. “They [Walmart and McDonald’s] can easily afford to pay [workers] $15 an hour without causing layoffs or requiring price increases.”

In regarding any profit as proof that a company can afford to pay more to its workers – without doing harm to its customers – that viewpoint disregards the realities of a competitive marketplace.

For one thing, Wal-Mart competes with other public companies in striving to maximize returns to shareholders. To say that Wal-Mart has been getting hammered in this regard is something of an understatement.

Wal-Mart’s shares have lost a third of their value since the beginning of this year – falling from a high of $90 a share in January to $60 at the close of business on Nov. 17. Meanwhile, its biggest rivals have done substantially better. Costco has climbed from $140 a share to $159, and Amazon.com has more than doubled in price.

In July, Amazon passed Wal-Mart to become the most highly valued company in the retail sector and it has shot further and further ahead since then. It now has a total market capitalization of $308 billion, compared with $195 billion for Wal-Mart.

Wal-Mart lags far behind both Amazon and Costco in productivity – measured in sales per employee, with Wal-Mart at $219,000, Costco at $565,000, and Amazon at $578,000. It is clear that Wal-Mart is intent on closing the gap by slowing the growth of bricks-and-mortar stores while putting much greater emphasis on e-commerce. As McMillon put it in his presentation on Tuesday:

We will be the first to deliver a seamless shopping experience at scale. No matter how you choose to shop with us – through your mobile device, in a store or a combination – it will be fast and easy. Online retailers are testing physical store experience because they recognize the same customer desire that we do. There’s a race to do this right.

But consider the impact on total employment at Wal-Mart if the company were to close the productivity gap between itself and Amazon by 25 percent over the next three years while also achieving its stated objective of growing annual sales from about $485 billion to $530 billion or more.

In this situation, Wal-Mart would need a global workforce of 1.7 million associates, compared to the 2.2 million it has now – a loss of approximately 500,000 jobs. That would entail a loss of about 320,000 associates out of the U.S. workforce of 1.4 million associates.

While those numbers are speculative, they clearly point to the conclusion that Wal-Mart will no longer be the great job-creation machine that it was years past, which is something that self-declared champions of working class should be thinking about in agitating for higher wages. Paying higher wages has made the company more focused on achieving higher levels of productivity.

At the same time the company may water down if not abandon its historic commitment to serving less affluent shoppers with rock-bottom prices across a vast array of merchandise. The late founder Sam Walton said his dream was “to serve the under-served.” That is less of a priority today. “Globally, we know growth will come from middle- and upper-income households in years ahead,” McMillon stated at an analysts’ meeting in October.

The post Killing the Golden Goose: How Walmart’s Left-Wing Critics Destroy Job Creation appeared first on Show-Me Institute.

Fifty years ago this week, President Lyndon B. Johnson enacted a series of welfare programs called the War on Poverty. One of these programs was Head Start, a program aimed at preparing low-income children for kindergarten.

Also under the umbrella of the War on Poverty, the Elementary and Secondary Education Act (ESEA) was enacted in 1965. The purpose of ESEA was to start funding schools with federal money, but it forbade a national curriculum.

Under President Jimmy Carter’s administration, the Department of Education was founded in 1979. Just a few years later, in 1983, the American public was shocked by the findings of A Nation at Risk, a report issued by the National Commission on Excellence in Education during President Ronald Reagan’s presidency.

President George H. W. Bush and President Bill Clinton left their mark on standards-based education in the 1990s with America 2000 (Bush) and Goals 2000 (Clinton).

In 2001, President George W. Bush reauthorized the ESEA under a new name, No Child Left Behind (NCLB), and in 2011, the U.S. Department of Education began awarding states with flexibility waivers from NCLB if they did things like adopt Common Core or evaluate teachers based on student achievement.

In just 50 years, federal oversight in education has grown and evolved. On the anniversary of one of LBJ’s key initiatives, some are calling for even more government intervention to fix the inequalities that still plague the United States today.

But federal intervention will not solve Missouri’s education problems—just look at the results. Few would argue the education system in America is in good shape, or that every child is receiving a quality education. So why institute more government intervention?

If the past 50 years has taught us anything, it’s that Missouri needs to enter a new era of education reform, one in which choice and competition are embraced.

The post Education: A Brief History Of Federal Overreach appeared first on Show-Me Institute.

In a letter obtained by the Show-Me Institute yesterday, we learned the identity of the district’s next appointee to LRA — Roger CayCe, executive director of operations for SLPS. Rick Sullivan, president and CEO of the school district, wrote, “We are sure Mr. CayCe will depict the same labor as a board member as he does in his position with SLPS.”

June 30, 2010, LRA Commission Meeting

We look forward to presenting our ongoing research about the agency to CayCe in the hope that the LRA will continue its recent positive momentum.

CayCe’s first regular meeting as a member of the LRA Commission will take place at 8:30 a.m. on April 27, 2011, in Suite 1200 at 1015 Locust St. in downtown St. Louis. Mark your calendars; we will be there to keep you up-to-date.

The post Saint Louis Public Schools Special Administrative Board Names New LRA Commissioner appeared first on Show-Me Institute.

Gosh, it was only a year ago when U.S. senators and representatives were debating provisions of a large-scale, mostly unread health care bill. One of the biggest issues at the time prompting the discussion of health care policy was the concern that U.S. health care costs are rapidly increasing, for both the government and the private sector.

Nixon’s proposal flies in the face of previous and current attempts to decrease health care costs. Requiring residents to see a doctor to obtain a prescription for, say, Sudafed vastly increases the cost for both individuals and health insurers.

For example, if I am sick tomorrow and need nasal decongestant, I will head to the nearest Walgreens and pick up the generic version of Sudafed for about $5. The entire process will take me less than 15 minutes. However, if I am sick in the future and the prescription requirement has been implemented, the additional cost to obtain medicine will include a visit to my doctor. The monetary cost to me could still be relatively low, if I have a low co-pay, but if I am uninsured, have a high co-pay, or a high-deductible health insurance policy, I may have to pay a great deal more. Meanwhile, my health insurance provider will pay whatever cost that I don’t, resulting in — all else being equal — higher health insurance premiums. All for the privilege of seeing a doctor. Because the state says so.

Now, I know that some, including the governor and Attorney General Chris Koster, will argue that these increased costs are worth it if meth-related accidents decrease. But this ignores that a number of other state laws have already been implemented specifically to eliminate meth production (and access to decongestant). The governor, in his press release, enumerates other restrictions already in place:

By law, pseudoephedrine must now be sold behind a pharmacy counter and buyers are limited to purchasing no more than 3.6 grams, or 120 standard tablets in a 24 hour period, and 9 grams, or 300 standard tablets, in a 30-day period. On Sept. 28, a new state rule took effect, giving authority to the Missouri Department of Health and Senior Services (DHSS) to work with law enforcement and pharmacies on a new database that automatically blocks over the limit sales of pseudoephedrine and allows law enforcement agencies to track pseudoephedrine purchases in real time.

So, Missouri government already limits the purchase of pseudoephedrine, restricts where it can be sold, and tracks those who purchase the drug. What else can the state do, short of making nasal decongestant illegal?

In fact, a good example of these policies at work can be found in Oregon, one of two states that have enacted prescription requirements for pseudoephedrine. According to Oregon’s Narcotics Enforcement Association, in late 2004, the state began requiring photo identification from purchasers of medicine containing pseudoephedrine, and the state required that those medicines be sold behind the counter. In 2005, the state tightened these restrictions, requiring the medicines to be sold behind pharmacy counters, and began tracking purchasers of the medicines. Those restrictions led to a dramatic decrease in the annual number of “meth lab incidents.”

In 2004, Oregon reported 448 meth lab incidents. In 2006, the count was down to 63.

But that wasn’t low enough for Oregon. In July 2006, a new rule was set: Medicines containing pseudoephedrine could only be purchased with a prescription. And that odious requirement, which almost certainly has pushed up health care costs in Oregon, appears to have resulted in the elimination of roughly 40 meth incidents per year (Oregon now has about 20 each year).

There are a few things I don’t know, but suspect may be at work. First, how do we know that Oregon’s policies have stamped out dangerous drug-related incidents? It may be that Oregon’s pseudoephedrine restrictions have merely encouraged meth producers to produce different illegal drugs instead. Furthermore, these numbers are for recent years. In the future, meth producers may figure out a way of acquiring pseudoephedrine that will bypass the restrictions.

All the while, more Oregonians have to go to the doctor in order to obtain cold medicine. Is the cost of their time and the resulting increase in health care costs worth it? I don’t think so.

Rapidly increasing health care costs are not a new problem. From our most recent three U.S. presidents:

Former President Bill Clinton:

Small businesses will continue to face skyrocketing premiums and a full third of small businesses now covering their employees say they will be forced to drop their insurance. Large corporations will bear bigger disadvantages in global competition, and health care costs will devour more and more and more of our budget.

Former President George W. Bush:

We share a common goal: making health care more affordable and accessible for all Americans. The best way to achieve that goal is by expanding consumer choice, not government control.

President Barack Obama:

Then there’s the problem of rising cost. We spend one and a half times more per person on health care than any other country, but we aren’t any healthier for it. This is one of the reasons that insurance premiums have gone up three times faster than wages. It’s why so many employers — especially small businesses — are forcing their employees to pay more for insurance, or are dropping their coverage entirely.

Regulations and restrictions like the prescription requirement proposed are certainly part of the health care cost problem. I hope Missouri’s governor will realize that, and withdraw his proposal.

The post Well, That’s One Way to Increase Health Care Costs appeared first on Show-Me Institute.

This article first appeared in the St. Louis Beacon.

With all the talk about polarizing politics and the fracturing of our democratic institutions, I have found the one topic upon which everyone can agree. Oh, and can disagree. That is protectionism.

On Sept. 11, President Barack Obama imposed a whopping 35-percent tariff on imported Chinese tires. Right-wing free-traders raised a hue and cry about his action. On the left, the New York Times editorial page observed that Mr. Obama “acted unwisely” in erecting this newest barrier to trade.

In response to critics, Mr. Obama should simply claim right of office. History shows that protectionism knows no party affiliation.

Ronald Reagan, the great advocate of free trade, slapped a 100-percent tariff on Japanese electronics in the late 1980s. His administration also pressured Japanese automakers into a “voluntary” restraint on their exports to the United States.

Bill Clinton championed the North American Free Trade Agreement and imposed punitive tariffs on imported steel. One Clinton official anonymously justified the move to the New York Times by noting that “The U.S. has a right to safeguard its industries and to impose temporary relief to address serious injury.” (By the way, much of the tariff fell on the kind of wire rod used to make clothes hangers.)

There are other examples: Lyndon Johnson threatened the French that the United States would not lower its tariffs on manufactured goods imported from their country unless they lowered the tariffs on our agricultural goods. George W. Bush followed Clinton’s lead by imposing stiff tariffs on steel, in an effort to protect the domestic steel industry.

Presidents of all political stripes seem disposed to impose tariffs, but is there an economic justification?

A tariff acts as a tax on an imported good. Like any tax, a tariff distorts the market’s equilibrium price and quantity for the good. And, like any tax, the government prospers. In this case, however, so do domestic producers. Because the imported good is now more expensive, U.S. producers are able to continue operating. And therein lies the true reason for tariffs: They supposedly save jobs.

In the case of Clinton’s steel wire tariff, the domestic wire industry employed at most an estimated 4,000 workers. For the modern tire industry, however, the number of “protected” jobs is much higher. But tariffs may not even save domestic jobs. Economist Thomas Prusa of Rutgers University estimates that Obama’s tariff could actually result in a net loss of 25,000 U.S. jobs over time. Moreover, he calculates that the annual cost of each job saved in the short term is upward of $300,000.

The big losers from a tariff are consumers. The price of tires, on average, will be higher after the most recent tariff. Using data from the International Trade Commission, Daniel Ikenson of the Cato Institute estimates that the average tire price for a post-tariff Chinese import will be about $60, significantly higher than its current average price of about $39. That raises the import price much closer to the average U.S. price, which is around $68. But the average post-tariff price of a tire — imported and domestic — has increased from $53 to $64. On average, consumers pay more for tires. Period.

If we all pay more for tires or steel or electronics after a president imposes a tariff, how can they get away with it? Consumers who pay more for tires or coat hangers or electronics are politically diverse. We do not have a strong lobby in Washington, D.C. The workers who face stiffer competition and may lose their jobs are much better organized. So are their lobbyists.

Presidential tariffs are as common as admonishing welfare cheats and overpaid CEOs. Leaving good economics behind, Obama is only channeling his predecessors. Too bad: I thought he was the president of change.

Rik W. Hafer is distinguished research professor and chair of the Department of Economics and Finance at Southern Illinois University Edwardsville and a scholar at the Show-Me Institute.

The post Tariffs Punish Consumers, but Remain Politically Popular appeared first on Show-Me Institute.

The International Herald Tribune has a kick-to-the-gut article about how it is now the responsibility of the federal government to buy people a home and send kids to college. I am by no means an expert on these issues, but I find it offensive that the government steps in to save everyone from themselves. In this entire mortgage imbroglio, it always gets overlooked that people bear the responsibility for taking on too much debt to buy a house. Nobody forced them to buy more house than they could afford at an adjustable rate mortgage with no money down. And why is it now the federal government’s job to guarantee all the student loans for college? It just sickens me that so many people are so happy to have the government take care of them.

Now, we’ll go into the think tank world for Reason’s newest video from Drew Carey. I have had discussions with plenty of people who support these types of health mandates / control freak laws. (I, myself, can even see the benefits of a few of them, like smoking bans.) The crazy thing, to my mind, is that many supporters argue that because the public pays for the health costs of so many people, the government has a right to regulate the way we live — i.e., banning trans fats or forcing people to wear helmets when they ride a bike. The insane thing is that this argument always comes from people who support greater government involvemnt in health care (i.e., socialism), so they put themselves in the perfect circle of arguing for more socialism in health care out of some moral imperative, and then arguing for the right to control our lives out of fiscal responsibility in health care. The idea that maybe we should let people live their own lives and then let them deal with the consequences of their actions — which, in come cases, will be negative — does not seem to enter their mindset. That would, of course, be too much freedom.

How does all this connect to Missouri? Well, we are the nation’s leader in saggy pants ordinances, so we have struck a blow for decency and telling kids we don’t want to see their boxer shorts. It’s also a nice excuse to stop them and check them for drugs, while we’re at it. It’s all very depressing, and my mood is not helped by the fact that the Cardinals will now be playing in Stella Artois Stadium.

The post How Free Are We, Part Two appeared first on Show-Me Institute.

“I was very upfront,” McCaskill said of her discussion with [InBev’s CEO Carlos] Brito. After offering him a Budweiser and sipping one herself, she told him she would “do everything I could to stop this sale from going through … It’s a bad idea. I don’t want you to buy it. The people of Missouri don’t want you to buy it.”

Politicians never seem to understand how capitalism works. The InBev deal is not the government’s decision or the people of Missouri’s decision. It is the decision of the shareholders of Anheuser-Busch. If shareholders reject the InBev deal, AB stock will plummet. But that is the shareholders’ decision, not ours.

More from the article:

Speaking to reporters after, McCaskill blasted the proposal as a “premium profit for hedge fund investors” and said A-B is a strong company that has provided thousands of good middle class American jobs.

Anheuser-Busch displaced thousands of good middle class American jobs last year when it bought out Pennsylvania’s Rolling Rock. And despite a website that looks very familiar to another local website, there was no outcry (or even a tear) from Missouri public officials.

“We do not have a ?For Sale’ sign on our front lawn in America,” she said.

Well, then maybe the government shouldn’t have gotten to the point where the American people owe $9.2 trillion dollars (of which about a third was accumulated under President Clinton, and another third under President Bush). If I owed trillions of dollars in debt, I might have to sell off a few possessions, too.

The Post-Dispatch (surprisingly) ran a pretty good reality check on the AB deal. And yours truly did, too.

The post This Bud’s for Them appeared first on Show-Me Institute.

What would be the effects?

Well, first of all, gas prices would be higher, not lower. Demand for gasoline is inelastic, at least in the short run. Gas station owners are already squeezing out a mere two cents in profit per gallon of gasoline sold. Therefore, with no real retail markup, the higher wholesale gasoline costs incurred by distributors would have to fall on consumers at the pump in order for the retailers to break even. So we’re worse off here. If you like paying $4.00 per gallon, how about if we add another 20 cents or so to that?

And which investors will pay for the tax — the rich or the broad middle class? Robert Shapiro, President Clinton’s former undersecretary of commerce, argues that ownership of industry shares is "broadly middle-class," with the majority represented by institutional investments in mutual funds, pension funds, and individual retirement accounts that are held on behalf of millions of ordinary Americans. This coincides with my previous post about energy investors and who benefits from oil profits.

And, lastly, the early 1980s experiment with a windfall profits tax suggests that tax revenues would be significantly lower than expected. When Congress passed the windfall profit tax in 1980, the Congressional Budget Office projected that it would raise $393 billion in tax revenues. According to Congressional Research Services, it only raised $80 billion. That would be enough revenue to run the government for about 10 days, based on the 2008 fiscal budget.

Remember, gas prices are about three times as high in Germany and other European countries, where combined excise taxes, fuel taxes, windfall profits taxes, and VAT taxes are passed on by oil companies to the consumers. Oh, and if you factor in the exchange rate, they’re about 4.5 times higher.

So why are we debating this, again?

The post Populist Pontificating appeared first on Show-Me Institute.

Imagine the economic and social benefits of putting more than $8 billion in the hands of low- and middle-income Americans. That is the amount millions of people now spend each year at check-cashing outlets, payday lenders and pawnshops on basic financial services that most Americans receive for free — or very little cost — at their local bank or credit union.

The high interest rates charged on payday loans reflect how much riskier those loans are than the typical transactions higher-income people handle at full-service banks. When a mainstream bank lends money, the borrower is typically someone who has deposited money there and who has a relationship with the bank. Payday lenders don’t have that security.

Payday lenders’ high charges and fees reflect a cost, and that cost won’t go away just because people switch to full-service banks. Someone has to pay for risky loans, and if the lenders don’t, someone else — probably taxpayers — will have to. Or, as a result of usury laws, poor people won’t be able to borrow money at all.

Clinton and Schwarzenegger suggest that their plan won’t be costly because it will just encourage people to use cheap services that are already there. But switching risky loans from one kind of bank to another won’t make the cost go away.

Poor people can escape payday loans if they earn more than they spend, save enough to deposit money in an account, gain financial literacy and form relationships with mainstream banks. That’s a worthwhile goal, but we can’t achieve it with a quick fix.

The post There’s No Free Lunch – Even in Banking appeared first on Show-Me Institute.

The article amazed me, not for its blatant disregard of economic logic, but rather for its presupposition of controversial facts about what universal health care coverage would be like. Reich accepts (without justification) that national health care will be affordable, universal, and comprehensive, offering excellent service for which every American will be free to choose the doctor of his or her choice without an automatic opt-in mandate. Well, by golly, if it isn’t Uncle Sam Santa. How crazy we’ve been to bicker about this.

I’m surprised the Journal let this go to print, particularly without a rebuttal. But for argument’s sake, let’s accept what Reich imagines and focus on what the article says instead. Reich argues that the Democrats should “think bigger” about national health care and ignore the petty issue of mandates (that is, whether or not uninsured Americans will be forced to participate). Reich recognizes correctly that mandates (and their big government connotations) are the most sensitive part of the health care debate, so he argues that they’re just a smoke screen. But mandates are the most important part of any universal health care plan.

Ostensibly, national health care would rely on younger, healthier participants’ contributions to subsidize the high costs of older, sicker Americans. That’s a non-partisan fact, as it’s the same rationale for Social Security and Medicare. How else can a system that offers universal coverage without distinguishing premiums remain solvent? Uninsured older Americans are the most expensive segment of the population to insure, yet we are supposed to believe that this wouldn’t pose a problem without a mandated influx of healthy Americans who contribute to the plan without utilizing its benefits?

Reich ignores this fact, and — presumably to appease the naysayers — argues instead that high-cost participants would be subsidized by the general revenue obtained from allowing the Bush tax cuts to expire. Please. Even if we were to assume that allowing the tax cuts to expire would increase revenues (it might not), address the alternative minimum tax problem (it won’t), and not push the country into recession (it probably would), there’s still the issue of how the additional revenue can even hope to offset the enormous cost of health care for millions of high-risk Americans — particularly when fixed premiums encourage health care abuses. Ironically, Reich provides his own counterargument to the importance of mandates when he cites Republican Mitt Romney’s Massachusetts health care plan (a plan which currently exempts about 20 percent of the state’s uninsured population and has left policymakers contemplating either universal coverage or insolvency). Oh, but “big government” mandates aren’t important.

Reich’s article is purely propaganda, ignoring the real argument by dismissing the bureaucratic mess of “big government” mandated coverage as the “least important aspect of what [the Democrats] are offering,” in order to appease Americans who want to believe that universal health care can be achieved without cost or government intrusiveness.

But it’s not “The Road to Universal Coverage” that Mr. Reich is offering; it’s the “The Road to Serfdom.”

The post Berkeley Bob on Health Care appeared first on Show-Me Institute.

Today they announced the top 20 for each category.

The top five for liberals: 1) Bill Clinton; 2) Al Gore; 3) Mark Penn; 4) Hillary Clinton; 5) Nancy Pelosi

The top five for conservatives: 1) Rudy Giuliani; 2) General David Petraues; 3) Matt Drudge; 4) Newt Gingrich; 5) Rush Limbaugh

Yawn.

Well, that was a week-long let down …

The post It’s like one of those VH1 Specials appeared first on Show-Me Institute.