Uncommon Sense

March 24, 2011

A Contract Is. . . ?

There was a time when Republicans argued that a “contract was sacred.” This is obvious, because the Republican Party is the “party of big business” and contracts are the lifeblood of business. But in the most recent round of their attacks on the middle class, not a single Republican can be found muttering that phrase let alone thundering it from a podium.

You see, in order to blame public employee unions for our current state budgetary woes (all evidence to the contrary) they are claiming that state employee retirement contracts are bankrupting the states. The scenario is that venal state government officials negotiated contracts with public employee unions that “gave away the store,” as it were (in order to buy votes). Those bad state officials (Democrats!) have given way to good state officials (Republicans!) who will set things right.

Let’s look at the facts. (I know that politicians are impervious to facts but you and I are not.) The average annual retirement benefit for the 101 major government pension systems tracked by the National Association of State Retirement Administrators is $24,738 per year. (Sarcasm Alert! Sarcasm Alert!) Obviously state employees are getting rich at the government’s expense! (Return Sarcasm Alert state to Green.) But those teachers, they are getting rich, right? The average for just teachers (remember they are all college graduates) is $30,624. (Sarcasm Alert, etc. etc.). You should also note that these payments are not really state money (see below).

So what is the real problem, not the made up one the Republicans are trumpeting? The real problem is that in many states, the schools (funded by the states) are not keeping up their side of the bargain. Typically a teacher’s pension system goes like this (I will use my California State Teachers Retirement System (CalSTRS) as the example): when hired the teacher is automatically put into the system; one is not allowed to “opt out.” In my case, roughly 8% of my earnings were put into a retirement account. (I say roughly 8% because the rate was adjusted a number of times to make sure there was enough money to meet obligations.) This was matched (by contract) by my employer (the school district) creating a retirement plan as a fringe benefit. Please realize that people with my credentials (Master’s Degree in Chemistry) earned roughly 50% more than I did throughout my career (according to the American Chemical Society’s salary surveys). The nice pension plan was described as an offset to the lower salaries. (This was not some secret. It was touted as such over and over.) Now, if you consult a retirement counselor and ask them if you will be okay in retirement if you invest 16% of your salary (8% out of my pocket, 8% as a fringe benefit) wisely for your entire working career (mine was 34 years), they will give you a big “thumbs up” and a half dozen “Attaboys!”. This is what Cal STRS did for me, they invested that money wisely. By the way the average CalSTRS pension is $38,795 per year, which ranks #9 on the list of the 101 plans mentioned above. (Please also realize that California is a very expensive state to live in. When I moved from the boonies in California to Chicago, my living expenses went down!)

The CalSTRS people invested wisely and their plan is solvent for at least the next 25 years (yes, including all of the Baby Boomers currently retiring). The problem with a great many of the other state plans is that the employers have been reneging on their contributions. The teachers have dutifully put in their own share (they have no choice) but the states have been only partially funding their part. And they have been doing this for years! Now that the Great Recession has worsened every budget picture, the states find themselves in crisis. But the fault is all theirs, not the teachers. The contracts were negotiated in good faith. The teachers kept up their end; the Party of the Second Part did not. So, the solution? According to Republican Governors it is to take away public employee bargaining rights and once they are gone, fix the problems unilaterally. Now you can be sure that the burden of the “fix” will be on the workers and not the states. Essentially they are voiding the retirement contracts by turning one party into a non-person. Big Brother has arrived and, surprise, surprise, he has a Republican face!

The same game is being played on Social Security. Republicans say Social Security needs fixing because, as we all know, it is seriously underfunded, right? We know this, right? Wrong. Social Security has been running a surplus for decades. More Social Security taxes have been collected than have been dispersed for many a year. This is because Republicans and Democrats got together and fixed things in the 1980s. The “problem” is that Congress passed a law stating that any such funds not spent in a fiscal year must be used to buy Government Bonds. In other words, the money was given to the government and the Government spent it. All the Government did in issuing a bond is promise to repay the amount at a later date with a bit of interest. So our Government has blithely spent all of the Social Security surpluses and now comes the time to repay them and . . . lo and behold, the Great Recession has put a great many people out of work. The unemployed pay no taxes. And recent tax cuts has created the situation where half of American citizens and two-thirds of American corporations pay no tax. So, just when we need the money, Congress has said “We don’t need the money, you keep it.” This is followed with Republicans running around screaming “Crisis, crisis, we have to do something; Social Security is broke!” Social Security is not broke, the Government just doesn’t want to repay the money lent to it (by the taxpayers, by the way) so they are making those payments sound like there is something wrong with the Social Security System, which there is not. In other words, “You paid too much tax, we borrowed it, we don’t want to repay you; it is your fault!”

This seems to be a consistent game plan for Republicans. In Wisconsin, a $140 million tax break bill for businesses was passed just before there was a $137 million budget shortfall crisis necessitating the stripping of public employee’s collective bargaining rights because, well, they caused it you see. In Florida the new Republican Governor has proposed $1.6 billion dollars in tax cuts for businesses and a $1.75 billion reduction in education funding. Apparently, since Republicans would rather ship our jobs overseas, they don’t believe we should waste money educating Americans who won’t have jobs anyway.

If you have been reading this blog, you will know that businesses do not need tax cuts (two thirds don’t pay taxes, so we are really talking about subsidies here); they need customers, which they will not have if Republicans get their way in driving down middle class wages and reducing the number of jobs even more than the Wall Street caused recession has done.

March 6, 2011

Even More Republican Perfidy

Filed under: Economics,Politics — Steve Ruis @ 9:14 am
Tags: , , ,

Two articles in the business section of my morning paper showed patterns that give the lie to many Republican policies. One showed that a highly touted business stimulation plan of the state of Illinois was less than sterling. Over half of the businesses initially qualifying for the plan either didn’t qualify thereafter or didn’t need the money. The other indicated that two out of three businesses paid no Illinois state tax last year.

Each of these have exact parallels nationally. Two of three business paid no business tax nationally also, and many if not most of the “business stimulation” programs are quite unneeded. But Republicans are claiming that businesses need incentives to hire more workers. They claim businesses need tax incentives and reductions in regulations. For example, in Wisconsin, the Republican majority provided $140 million dollars in unneeded business tax breaks before screaming “there’s a huge state government economic crisis and we have to break the unions to solve it.” Apparently they didn’t see the shortfall when they passed the giveaway of tax receipts just a month earlier.

I think it can be safely argued that there are bad regulations on the books, but nobody seems to be trying to root them out. Republican efforts are meat axe efforts to reduce regulation: gut the EPA, for example. Do away with the good regulations and the bad all in one stroke. Saves time, apparently. Their efforts to break unions have nothing to do with deregulating business and everything to do with eliminating opposition to anything businesses wish to do, and it seems the other things they are doing are likewise directed.

For a time, Republicans were claiming businesses weren’t hiring because capital was unavailable to them (the Federal government was borrowing all of the available capital!). This bogus claim disappeared after it was revealed that American businesses were sitting on over $2,000,000,000,000 of cash. Now that it has been revealed that two out of three businesses pay no business taxes, maybe Republicans will stop beating the “cut corporate taxes” drum, but I wouldn’t count on it.

So, why are businesses not hiring more workers, expanding operations, etc? The answer is simple: what they are missing is customers. With millions of people unemployed, still more millions losing their houses in repossessions, and countless more millions fearful of losing their jobs or having their salaries and/or number of work days reduced, people are not buying what they used to. The same is true worldwide as the recession was global, not just confined to our borders.

When this occurs, the only way that history (not just some hypothetical claim) shows that the cycle can be broken and economic growth jump started is for the government to step in and be the customer of first choice. Government has to buy things which it needs to provide the jobs, which provides the commerce that gets things going again. The prime example is infrastructure spending. If you are someone who thinks that the private sector will take care of things, think again. How many of our roads and highways were built by private means? Very, very few. How about bridges and airports? Very, very few. Building infrastructure that we all can use is a proper role of government. But detractors say, the deficit is too high! We can’t borrow money to do these projects! This is strange argument, because money is always borrowed to do these projects. And consider this: if these infrastructure problems are put on a back burner, they don’t just go away. In fact, the problems get worse over time and get more expensive to fix. Studies show that the increase in the cost of such repairs/replacements increases much faster than does the interest on such loans, so a 1 billion dollar job done currently when the costs of materials and labor are quite low may cost as much as 3 billion dollars in just a couple of years. So, we need to compare the current interest rates (quite low) with the cost increases coming, as wages and materials most definitely will rise in cost.

So, what do the Republicans actually want to do? They want to not borrow. They want to cut budgets well back below what actual tax receipts are. Most people like this “living within our means” talk, but is this actually what we do? The current federal budget has 5% of expenditures going to paying off our debt. In fourteen years, with nothing done, meaning deficit spending (at record levels) for another 14 years, as much as 15% of the federal budget will go to debt service. Let’s compare this with an average American family. For simplicity, say that a family’s after tax (federal and state) income is $50,000 per year. Does this family own a house? Probably yes. Let’s say the house costs $2000 per month, and if bought recently, 90+% of that is interest on the mortgage. So far, with a net income of $4170 per month, $1800 per month (90% of $2000) is going to service debt, which is 43% of the family’s budget. And we haven’t gotten to interest on car payments, credit cards, college student loans, and more.

Why are Republicans claiming we have this huge debt crisis? Take a guess. Politics maybe, hunh? Every time we have been in this situation before, austerity plans like the Republicans are demanding have sent us back into recession. It happened during the Great Depression, after World War II, and every other time it was tried. For a current example, see Britain; it is happening there right now.

Wall Street banks and “pro-business” economists state that if even the Republican plan for the federal budget getting us just to the end of the current cycle, in September, were implemented it could cost the economy 1.5-2% of growth. Currently economic growth is 2-3%. In other words, the Republican plan would completely stall the economy which is just beginning to recover from the worst recession since the 1930’s.

So, why are the Republicans doing this? The answer is apparently is the same no matter the subject of the question (Why are the Republicans doing anything?):  politics. The Republicans are against big government, except when it comes to planned parenthood, abortion, gay marriage, gay people serving opening in the military, etc. Republicans are for national defense, except when the Defense Department indicates there are weapons that don’t work and aren’t needed and then they say “you must take these, whether you want them or not.” Republicans are for free trade, except for all of the tax breaks that can be steered business’s way, giving them an advantage over foreign competitors (at one point the five most profitable corporations operating in the U.S. were oil companies, but the Republicans have insisted that they continue to receive mammoth tax breaks (the so-called “oil depletion allowance”).

The once proud Republican party has lowered itself to serving only itself and its corporate masters. Serving the country? Hardly.

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