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Home Publications Blogs Beat the Press Charles Lane Complains About "Vast" Transfer to Big Banks

Charles Lane Complains About "Vast" Transfer to Big Banks

Friday, 06 December 2013 06:29

Couldn't resist this one. No the WaPo columnist isn't complaining about too much money going to big banks. He is once again complaining about money going to seniors, or more specifically the idea pushed by Senators Tom Harkin and Elizabeth Warren that we might want to increase the money going to seniors.

Harkin proposed a bill, which Warren has now endorsed, which will base the annual cost of living adjustment on a price index that more closely tracks the consumption patterns of seniors than the current index. It would also raise benefits by an average of about $70 a month.

This makes Lane unhappy since he thinks seniors are doing just fine. Ironically he cites a study showing that the share of 70-year olds who won't be able to replace 75 percent of the income will rise from 25 percent for those born between 1940-1944 to 30 percent from 1970-1974.

This actually is a low bar for two reasons. First weak wage growth over this period means that 75 percent of working income is much less relative to the economy's average productivity for this later age cohort. The other reason is that at age 70 the later born cohort will have on average have about 2.5 more years of life expectancy (12.6 year versus 10.2 years). This means that they will likely have more wealth and will more likely still be working.

The real value of Social Security benefits do increase through time and therefore are projected to be a considerably larger share of retirees' income in future decades. This shows the importance of Social Security, but hardly describes a scenario of a thriving population of wealthy seniors.

But getting back to the issue of the size of this transfer that Lane terms "vast." The increase in benefits of $70 a month would cost around $50 billion a year. We don't know exactly how much the elderly CPI will differ from the currently used index, but if we lift the numbers in the other direction that the Congressional Budget Office estimates for the chained CPI, the additional expense will be around $10 billion a year over the next decade, bringing the total cost to $60 billion, a bit less than 0.4 percent of GDP.    

By comparison, Bloomberg News estimated the size of the implicit taxpayer subsidy to the big banks at $83 billion a year, a bit more than 0.5 percent of GDP. For some reason the vast subsidy to the big banks, and implicitly their top executives and shareholders, doesn't draw the same attention in the Washington Post's pages (news and opinion) as money going to seniors. 

Comments (7)Add Comment
Boomers Outed as the Real Economic Predators: The Takers Who Caused Global Warming
written by Last Mover, December 06, 2013 8:28


If you think Charles Lane is over the top, get a load of Tim Donovan at the link above who claims:

Boomers are causing certain destruction of the planet by global warming ... because of sacred entitlement cows of Social Security and Medicare ... which crowd out resources that could be used to stop global warming.

Economic armageddon is near America. Boomers will soon be blamed for every tornado, every hurricane, every flood, rounded up after every one and hustled away to Entitlement Reform Camps to be tortured by Austerians with waterboarding until they give in, and give up the entitlements they themselves paid for ... so others can live.
written by skeptonomist, December 06, 2013 8:55
SS benefits have at times been linked to average wages and at times to prices. But why are we not talking about linking them to overall production, that is to nominal GDP per capita? Why should seniors be frozen in at the national production when they retire and not benefit from productivity increases? This would make it clearer that all income - interest, dividends and capital gains - should be taxed for SS. Probably this would not happen, but there's no reason not to adopt this as an initial bargaining position.
skepto...close again
written by pete, December 06, 2013 10:04
A flat tax (re: payroll tax) on all income is a great idea, replacing the current income tax. Since spending including true G and also transfers, is about 25% of GNP, then 25% flat would work. Probably ain't going to happen, you are headed in the right direction. Others have called for a huge increase in the capital gains, mistakenly thinking this was the real rate in the 70s. Of course, interst on credit cards, car loans, all mortgages, etc., was deductible in addition to many other loopholes. Flatter with fewer loopholes is definitely better.
“…the cost to $60 billion, a bit less than 0.4 percent of GDP.”
written by Bill H, December 06, 2013 10:27
I actually favor the adjustment you are advocating, but why does that calculation have any meaning whatever? Other, that is, that an economist is using it because it creates the impression that $60 billion is an infinitesimally small amount of money? Why is the amount of money being spent by the SSA being compared to the GDP of the entire nation?

Is $60 billion per year actually a small amount of money? What portion of the Social Security Administration’s budget is it? The SSA will take in $959 billion this fiscal year, and will pay out $871 billion in benefits, so that $60 billion is roughly 6% of revenue, and it would raise benefits by almost 7%, which is by no means trivial.

When I decide whether or not I can afford to buy a car I do not calculate what portion of the nation’s economy would be eaten up by that car payment; such a calculation would be utter stupidity. I calculate what portion of my own personal budget would be eaten up by that car payment.

Calculating the cost of government programs against the economy, rather than against federal revenue, certainly makes them look less expensive and makes it easier to justify excessive government spending, but it is dishonest.
SSA is run by government, Bill H...
written by Matt, December 06, 2013 10:35
...so it wouldn't be that difficult to tinker with the program to either a) subsidize it out of general revenue, or b) raise the intake slightly now. We're aiming to improve the lives of people, so no use putting up artificial walls between different aspects of government and considering each little program as necessarily fiscally separate.
Matt...spot on...
written by pete, December 06, 2013 12:03
A carbon tax is what is needed. This could be used to offset much income taxation. Most economists argue that taxes are best placed either non-distortionarily on economic rents, or on things with negative externalities like carbon pollution. The efficiency gains are there to be had.
written by Mr. Bill, December 06, 2013 11:12
Let us not compare this proposal with the Trillions given to the Too Big to Fail Banks.

It would be an unfair comparison. Rich people deserve to be bailed out. Working and poor people dont.

George W. Bush recipient of Professional Sport Team Stadium Taxes

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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.