A Little News On Entitlements

Charles Blahous, a former public trustee for Social Security and Medicare, has a WSJ update on the financial position of these entitlements.  The title is The Social Security Trust Fund Goes Bust.  He says:

The downward spirals have accelerated. The combined Social Security trust funds—one for disability, one for retirement—as well as Medicare’s hospital-insurance trust fund, will begin eating into their reserves this year, according to reports released this week by the programs’ trustees.

It seems to us like an attempt to use the most recent data to galvanize the people to spur the Congress and the President into action.  It really should not be necessary and if the data was slightly more favorable it should not change the situation.  Charles gives us the important message near the end:

The annual press focus on the projected insolvency dates has always been somewhat misplaced. What’s really important is the magnitude of the shortfalls and the difficulty of correcting them, which grows every year.

We agree.  What is amazing is when you Google “Social Security Trustee Report 2018” is how little news it generated.  It mostly shows up on opinion sites.  The one in a news publication, US News And World Report is by Mark Miller and entitled, Repeat After Me: Social Security And Medicare Are Not Insolvent.  And why is an insolvent program not insolvent?

In other words, retirees – and future retirees – would lose nearly a quarter of their benefits. But that is not insolvency, and solutions are readily available to avoid that unacceptable outcome.

Here is an experiment.  Try paying 77% of your bills.  Are you insolvent?  Affirmative.  The outcome of insolvency depends on your creditors.  And if you have no chance, as with entitlements, of ever paying more than 77% then you are absolutely insolvent.  The only question is whether it will be solved before or after bankruptcy court.  Then Mark gives us a summary of the options:

Conservatives favor benefit cuts via higher retirement ages, more means-testing and a less generous annual cost-of-living adjustment. Progressives advocate gradually increasing payroll taxes and lifting the cap on taxable benefits. Considering that middle-class households depend mainly on Social Security for support in retirement, it would be wiser to follow the progressive agenda.

The first and second sentences need a close reading to reveal the bias.  We might convert Mark’s first two sentences into:

Conservatives favor solutions like means testing, more accurate cost-of-living adjustments, higher payments to lower classes, and higher retirement ages.  Progressive advocate higher taxes through increasing tax rates and the amounts subject to Social Security taxation.  Many conservatives and progressives seem to support ignoring the problem.

The last sentence in our quote of Mark is very curious.  Does it mean that the lower class doesn’t depend on Social Security (SS) for retirement?  We would like to see that data.  Our priors are that lower classes rely most heavily on SS of any class.  We, along with many conservatives, would support an increase in SS payments to them.  Middle class depends  on SS between the upper and lower, and the upper class depends the least on SS.  As we see it, the wiser course is the conservative agenda of means testing because it will reduce the payments to the upper class that is less likely to need it.

Fixing Social Security today is relatively easy because there are many politically viable solutions.  None of these solutions have happened because of the political opportunity in opposing any changes.  Fixing Medicare is going to be much harder because of the difficulty in creating a market for medical services.  We know we are not going to start today but let’s start soon for the kids and grandkids because, as Charles says, it gets harder to fix every day.  Start with SS.

 

 

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Taxes And Buying A Home

Who is better named to write an article on buying a house than Sarah Skidmore Sell?  According to Muck Rack, she is the national personal finance reporter for the Associated Press.  The article in our local paper, Tough Market For Buyers, isn’t listed at Muck Rack or the local paper (so they don’t get a cite).

Anyways, Sarah discusses that home supplies are down, prices are up, interest rates are up and the tax laws is less generous.  She is right about tax laws and mentions that interest deduction is now limited to the first $750,000 (down from a million) and deductions for state and local taxes are limited to $10,000.

Sidebar One: Here in flyover country it is very difficult to find a $937,500 house.  That is the price that would result in a $750,000 mortgage after a 20% down payment.  The $10,000 limitation is more likely to have an impact on us folks in the middle of the continent but unless you have a big income and a big house with big mortgage then the impact will be small or nothing.  End Sidebar One.

OK but the big difference for most folks is doubling the standard deduction from $12,000 to $24,000 for married filing jointly.  The number of folks itemizing deductions will be substantially reduced and the reduction in tax rates will reduce the impact of deductions above the standard even more.  This study by Sean Lowery from the Congressional Research Service using 2014 data shows that 30% of taxpayers itemized in 2014 and taxpayers with AGI between $100,000 and $200,000 averaged itemized deductions of $25,598.

For example, if a couple earned $150,000 and had itemized deductions of $25,600 [just above Sean’s average], under the old tax law they could reduce their taxes by $3,400 (($25,600-$12,000)) * 25%) compared to taking the standard deduction.

Sidebar Two : Yes $12,000 was the standard deduction in 2017 and $24,000 is the standard deduction in 2018 so the comparison is off by a few dollars but it rounds more easily.  End Sidebar Two.

Now with a standard deduction of $24,000 and lower tax rates the tax savings in our example would be 22% of $1,600 or $352. Almost everyone will see an overall tax reduction from the new law but the value of itemization will be substantially reduced or eliminated for many.  That is OK as simplification is a good thing.  Sarah should have commented on that change because it affects the most folks.

 

 

 

Bari And The Intellectual DarkWeb

Bari Weiss is riding the Intellectual Dark Web (IDW) at the NYT.  Kyle Smith at NRO is excited and the Left is aghast.  Quote from an NYT Letter to the Editor:

The “dangerous” ideas put forth by the people in Bari Weiss’s article are no longer discussed because we have collectively agreed that they are wrong.

Ah, we love appeals to authority that don’t identify the authority.

Sidebar One: We don’t know if the picture of Bari in Kyle’s article is recent but we were astonished by her youthfulness.  We asked the Lady deGloves to estimate her age.  She her estimate was exactly the same as ours: the year Sheldon Cooper started college.  End Sidebar One

Sidebar Two: To find out Bari’s age we Googled her.  The link to Wikipedia had a comment on the NYT that most might find ironic:

Bari Weiss is an American journalist. In 2017 Weiss joined The New Zionist Times as a staff editor in its opinion section.

Wikipedia didn’t exactly agree with the link:

Bari Weiss is Zionist filth. In 2017 Weiss joined The New York Times as a staff editor in its opinion section.

Well, assuming that Wikipedia got her graduation date from Columbia right she is much older than we thought.  On the other hand, we might guess that her religion and support for Israel might be a substantial part of why she is controversial when she seems so Milquetoast.  End Sidebar Two.

Bari’s article on the IDW interviews many of the characters and discusses their success in monetizing their fame.  Many of them are doing quite well.  At the end Bari discusses her opinion of the IDW:

Am I a member of this movement? A few months ago, someone suggested on Twitter that I should join this club I’d never heard of. I looked into it. Like many in this group, I am a classical liberal who has run afoul of the left, often for voicing my convictions and sometimes simply by accident. This has won me praise from libertarians and conservatives. And having been attacked by the left, I know I run the risk of focusing inordinately on its excesses — and providing succor to some people whom I deeply oppose. [Emphasis added]

I get the appeal of the I.D.W. I share the belief that our institutional gatekeepers need to crack the gates open much more. I don’t, however, want to live in a culture where there are no gatekeepers at all. Given how influential this group is becoming, I can’t be alone in hoping the I.D.W. finds a way to eschew the cranks, grifters and bigots and sticks to the truth-seeking.

Sidebar Three: We are curious about her definition of classical liberal.  We think the answer is conservative.  She doesn’t seem to think so.  We want to read more of her stuff to find out about her.  End Sidebar Three.

She gets the appeal free speech but she wants gatekeepers.  It is the problem with free speech.  You get cranks, grifters, bigots, and worse.  There are folks that will try to be gatekeepers but we need to be sure that they are not effective.

 

Thanks Paul

Paul Ryan is retiring from the House.  He has made a big difference.  He has succeeded in reforming taxes.  He was unable to reform entitlements but surely he has influenced that debate and we will be thankful for him later.  Our fondest wish is unfulfilled: We wish he was in his second term as Vice-President.  We wonder if their will be a Churchillian second act for him as entitlements fester.

Wisconsin’s Congressional delegation gives us reason to be humble and proud.  We Paul in the House and Ron in the Senate we might have the best pair of any state.  Paul is leaving shortly and Ron not long after that.  We wish everyone would follow their lead by coming in and trying to make a difference, behaving well, and then moving on.  Paul and Ron have made a difference and been a credit to our state and the nation.  Thanks to both of them.

Hating The Donald

We were wandering around the Internet.  First we went to Tyler Cowen’s Marginal Revolution site. Tyler is a serious economist.  Wikipedia tell us that:

He was ranked #72 among the “Top 100 Global Thinkers” in 2011 by Foreign Policy Magazine “for finding markets in everything.”[4] In a 2011 poll of experts by The Economist, Cowen was included in the top 36 nominations of “which economists were most influential over the past decade.”

He said that Christopher Lebron at the Boston Review had the best review of Black Panther.  We are interested in the movie and want another review.  Armond White has never been very helpful for us.  Armond is too worried about philosophy and has too many reference to movies we haven’t seen.  We want to know if the movie is entertaining.  We thought the Greatest Showman was a really entertaining movie.  We were shocked at how good it was after so many poor movies recently.  Interestingly, the preview from the star and director suggests that they wanted to make an entertaining movie.  Perhaps it is not hard to make an entertaining movie if that is your goal.

Tyler does say the review is via Hollis Robbins but we think he should read it to link to it.  Here is part of the first paragraph of Christopher’s review:

This is a tall order, especially in the time of [The Donald], who insists that blacks live in hell and wishes that (black) sons of bitches would get fired for protesting police violence.

We wonder what somebody would need to say about a political figure to have it be a bad review?  We don’t know much about the Boston Review.  They might think it crucial that they signal their hate of The Donald to their audience.   We are, however, disappointed in Tyler.  He should understand the importance of  rhetoric.

Quasi-Experimental Results

Some results are in on the quasi-experiment designed by the GOP.  The recently passed tax reform bill coincides with an Apple announcement in the WSJ that it:

would make a one-time tax payment of $38 billion on profits accumulated overseas and ramp up its spending in the U.S., as it seeks to emphasize its contributions to the American economy after years of taking criticism for outsourcing manufacturing to China.

An interesting part of the coverage is the difference between the WSJ reporting and the WSJ editorial page.  Here is more of the WSJ reporting cited above:

Apple said its one-time tax payment was the result of recent changes to U.S. tax law, under which companies must pay a one-time tax of 15.5% on overseas profits held in cash and other liquid assets. Profits held in other forms will be taxed at 8%. The company said in November that it had earmarked $36 billion to cover deferred taxes on its $252.3 billion in overseas cash holdings, assuming that it would eventually pay U.S. taxes on a portion of it by bringing it home.  [Emphasis added]

The news gives the new tax rate rather than the reduction, which would seem to be the interesting part, and suggests that the profits would have come home eventually anyway.  The details are not complete here but it looks like the news folks are confusing financial accounting and tax accounting.  The WSJ editorial page has a different take:

Apple said Wednesday that it will pay $38 billion in taxes on the $250 billion or so in cash the company holds overseas; that’s a lot of money for Social Security checks and food stamps. Apple also said it would invest or spend on purchases some $350 billion in the U.S. over five years and add 20,000 jobs.

Apple’s windfall for the U.S. Treasury is the result of the reform bill’s 15.5% “deemed” tax rate on profits previously earned overseas whether or not they are returned to the U.S. The old system featured a one-two punch of taxation abroad and than again at home at a punishing 35% rate if the money was repatriated.

Apple had no plans to return the money to the U.S. under that regime, and ditto for many other companies that together have some $2.5 trillion abroad. Republicans broke this logjam by lowering the top rate and creating a permanent system that taxes income where it’s earned. Now Apple can put this cash to whatever the company deems the highest use, without arbitrage from tax policy.

We can’t live out the other option of high corporate taxes and there is only one Apple so we can’t randomly assign anything.  We can’t make any statistical statements and there is some possibility of arguing cause and effect because it is only a quasi-experiment.  The results, however, seem robust to us because of the previous statements of corporate officials and the proximity of the tax change and the results.

Hillary And Russia

James Freeman at Best Of The Web on the WSJ discusses the issue of how much trouble the previous administration should be in over its investigation into The Donald’s campaign and administration.  He is taking issue with the NYT over their recent reporting:

The NYT lays out a dossier-free explanation of the genesis of the federal investigation of the opposition political party [NYT follows]:

During a night of heavy drinking at an upscale London bar in May 2016, George Papadopoulos, a young foreign policy adviser to the Trump campaign, made a startling revelation to Australia’s top diplomat in Britain: Russia had political dirt on Hillary Clinton. [Emphasis added]

You should read it all if you are a subscriber.  We would like to take a different issue with the NYT: the words startling and revelation.  This is not startling.  It is not a revelation.  If you picked the Patriots to win the AFC East [either 2016 or 2017] at the same time you were not nearly as safe as George.  Is there any sentient being that thinks that Russia and several other countries do not have political dirt on Hillary and The Donald?  Even if you are not certain that Russia hacked Hillary’s email you know that Russia is serious about spying and Hillary is careless.  Of course Russia has dirt on Hillary and The Donald.  The difference is that Hillary knows that the press will keep her dirt under the rug unless somebody like Russia forces the issue.  The Donald doesn’t seem to care about the dirt.  The leverage that the dirt on Hillary would give Russia might matter.

What we can’t understand is why a top diplomat from Australia would be surprised about this.  Was it George’s certainty?  Australia’s diplomats don’t seem very up on world events.  Or perhaps it is the NYT that isn’t up on world events.