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USA Today Goes off the Deep End on the Estate Tax Print
Wednesday, 21 July 2010 09:31

USA Today had a major story warning that middle-class families may be hit by the estate tax. It warns that people with estates of just a million will be subject to the tax if the law is not changed. The article never points out that the tax will only affect the amount of the estate over $1 million, nor does it mention that the exemption is per person, so that a couple can easily pass $2 million on to their heirs and escape all tax liability. In short, this article gave readers absolutely no idea of the issues involved and it is likely to make many people, who will at most be trivially affected by the estate tax, to believe that they face serious liability.

The article also bizarrely asserts that partisanship has prevented a resolution of the issue. This is not true as can be clearly seen from the evidence presented in the article. While most Republicans support lowering or eliminating the estate tax, there are also some Democrats who have held out for lower rates. The article presents no evidence whatsoever that partisanship is preventing a resolution, as opposed to a conflict between people who want to pay lower taxes and others who want them to pay higher taxes.

 

 
Owning Versus Renting: It Matters If You Are In a Bubble Print
Wednesday, 21 July 2010 07:33

This article discusses the Obama administration's housing policy, which seems to be moving away from an exclusive focus on homeownership. The article notes that many moderate-income people who bought homes in the last decade ended up losing them.

It would have been worth mentioning the housing bubble in this context. In many cases, it might have made sense for families, in principle, to become homeowners in the years 2002-2007, but not when it meant purchasing homes at bubble-inflated prices. The bubble could have been easily detected by a simple examination of price-to-rent ratios and other fundamentals. Unfortunately, the vast majority of housing professionals, including the people at HUD and Fannie Mae and Freddie Mac, were too lazy to do this sort of assessment. As a result, millions of moderate-income families bought homes that they were not able to keep.

 
If Business Confidence Explained Lack of Hiring, Then Hours Per Worker Would Be Increasing Print
Wednesday, 21 July 2010 07:27

Business people always want more money. That is part of a being in business. (Has Goldman Sachs or General Electric ever said they want lower profits?) This means that their spokespeople can be counted on to complain about taxes, regulations, wages or anything else that costs them money. Sometimes what they say is not true.

This can be clearly seen with current complaints that fears about regulation and higher taxes are discouraging hiring. This claim can be easily tested. If firms are in a situation where they would be hiring except for these fears, then we should be seeing an increase in the average number of hours worked per worker. We are not seeing an increase in hours worked that is at all out of line with prior recoveries. In fact, in the June data, hours worked fell. 

Reporters should examine whether the claims of business people are plausible instead of just repeating them.

 
Estate Tax: Can You Say "Marginal Rate?" Print
Wednesday, 21 July 2010 07:19

Market Place radio did a segment on the estate tax this morning and neglected to tell listeners that the tax is a marginal rate that only applies to the value of an estate above a cutoff. It also got the pre-Bush tax cut rate wrong.

Therefore when it told listeners that the estate tax will revert to the 2001 level next year if nothing is done, it likely left them hugely confused about the tax rate. The piece said that estates of more than $1 million would face a 55 percent tax rate. This would have led listeners to believe that an estate worth $1.1 million would face a tax liability of $605,000.

In fact, the first million would face no tax liability and the next $100,000 would be taxed at a 37 percent rate, making the total liability $37,000.

 

 
NYT Finds that Social Security Makes Overpayments Equal to 0.01 Percent of Its Spending to State Workers Print
Wednesday, 21 July 2010 07:05
The NYT devoted a story to an audit by Social Security's Inspector General that found the system pays $53.2 million annually more than it should to former state and local government employees. The overpayment stems from a failure to correctly offset pensions earned in government employment that is not covered by the Social Security system. 
 
Good Article in the WSJ on Bank Concentration Print
Tuesday, 20 July 2010 06:56
Too bad that they couldn't run it before the financial reform bill was approved.
 
Is Declining Faith in Social Security Due to the Recession or Peter Peterson? Print
Tuesday, 20 July 2010 06:07

USA Today notes a decline in the percentage of people who expect to receive their Social Security benefits. The first sentence of the piece implies that the loss of confidence is due to that fact people have been: "battered by high unemployment and record home foreclosures."

While the recession could explain the loss of confidence in Social Security, it is also possible that the huge public relations campaign by Peter Peterson and others has played a role. Peterson, a Wall Street investment banker, has pledged $1 billion to a foundation that has cutting Social Security and Medicare as its major goals. He has spoken widely around the country telling people that Social Security is going broke and that it has no trust fund. He has enlisted prominent political figures, including former President Bill Clinton in this effort.

There are other efforts to undermine public confidence in Social Security, most notably President Obama's deficit commission. Former Wyoming Senator Alan Simpson, one of the co-chairs of this commission, has also frequently insisted that Social Security is going broke.

It is possible that these public relations efforts have had their intended effect of undermining confidence in the Social Security. The article should have at least noted this possibility.

 

 
Voters Confuse the Bailout With the Stimulus and Post Won't Tell Readers Print
Tuesday, 20 July 2010 05:06

The Washington Post felt that it was important to tell readers that the stimulus was very unpopular in a working class Pennsylvania district. However, it did not point out that a main reason that it is unpopular is that voter confuse the stimulus with the TARP bank bailout, which the paper strongly supported.

According to the article:

"Democratic pollster Mark Mellman said disgust with the stimulus and anxiety about the deficit are 'really a metaphor for wasteful government spending.' From the perspective of many voters, 'a lot of their money has gone out the door to bail out big banks and big corporations while their jobs have been lost.'"

This is a pretty direct statement that the TARP remains incredibly unpopular and that voters tend to confuse the stimulus with the TARP. A serious newspaper would have made this point. It is not that the voters object to measures that create jobs, they object to measures that hand banks money.

 
The NYT Still Has Not Heard About the Housing Bubble Print
Monday, 19 July 2010 16:30

The housing wealth effect -- the idea that people's consumption is determined in part by their housing wealth -- is one of the oldest concepts in economics. Apparently the NYT still has not heard about it.

An article about the consumption patterns of the wealthy made no mention at all of their housing wealth. The economy lost around $6 trillion in housing wealth with the collapse of the bubble, a disproportionate share of this wealth was held by the wealthy. It would be very surprising if their consumption did not decline in response to this loss of wealth. (The housing wealth effect is usually estimated at 5-7 cents of additional consumption each year for every additional dollar of housing wealth.)

 
IMF and the European Union Support Larger Deficit in Hungary to Help Banks Print
Monday, 19 July 2010 11:30

The NYT reported that negotiations between Hungary and the IMF and EU on the release of additional funds reached a deadlock over the weekend. Buried deep in the article, the NYT reported that:

"The I.M.F and E.U had criticized Hungary’s decision to impose a special tax on financial institutions, saying it would send the wrong signal to investors and could hurt economic growth."

This is striking since apparently the IMF and the EU are insisting that Hungary tax measures like cutting benefits for retirees rather than tax banks. This would have been worth publicizing.

The IMF has publicly claimed that it supported making the banks and either financial institutions pay more towards supporting government budgets. The effort to force Hungary to get rid of its bank tax, apparently accompanied by the threat of withholding funds, suggests that it is not following in practice the position that it has taken in public. This contradiction merits attention from the media.  

 

 
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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