A Win for “Just Scrap the Cap”

Conservative billionaire Pete Peterson, a major financier in the effort to dismantle Social Security, Medicare, and Medicaid, just got some egg on his face courtesy of the Social Security Works – Washington coalition, the Economic Opportunity Institute and PSARA.

The winning video in the Pete Peterson Foundation’s video contest – which had the goal of “compiling videos of people across the country letting Congress and the President know why fixing our nation- al debt is so important” – was “Just Scrap the Cap”, which represents the antithesis of Peterson’s austerity agenda.

If you haven’t seen it, “Just Scrap the Cap” is a humorous plea to shore up Social Security’s long-term finances by eliminating the current FICA wage cap of $113,700. Also known as “Scrapping the Cap”, this change would require billion- aires like Peterson to pay the same Social Security tax rate as the guy who shines his shoes. Watch it here: www.justscrapthecap.com

Here’s the best part: After the votes were tallied and it was determined “Just Scrap the Cap” received the “Fan Favorite” award, Peterson was forced to cut a $500 check to Robby Stern, Social Security Works Washington Chair. Robby signed the check over to Social Security Works Washington and has promised that the coalition will use the money wisely: “We will use the $500 to finance our educa- tional efforts and our Scrap the Cap cam- paign. We want to save Social Security from Peterson and his band of wealthy supporters.” Surely Mr. Peterson will be pleased to hear his money is going to a good cause.

Also published at Puget Sound Alliance for Retired American’s website.

Estate tax technicality may result in millions lost from education budget

Another loophole for the wealthy?

The technical glitch, if not fixed by the legislature, will siphon $160 million out of Washington's Education Legacy Trust Fund, to which the estate tax is dedicated. It funds tuition assistance, higher education, and public schools.

If not fixed by the legislature, this technical glitch will siphon $160 million out of Washington’s Education Legacy Trust Fund. It funds tuition assistance, higher education, and public schools.

Washington’s estate tax, which applies to the sons and daughters of wealthy estate owners, provides dedicated funding for public schools and public higher education in Washington state, including tuition assistance. But a recent decision by the Washington Supreme Court has opened up a loophole that will allow many wealthy heirs to sidestep the estate tax altogether via a complex mechanism known as the Qualified Terminable Interest Property (QTIP).

This technical glitch ”creates an inequality never intended by the legislature” according to two bills introduced to fix the problem – one a Democrat-sponsored bill in the House, the other a Republican-sponsored bill in the Senate. Unless the language of the law is clarified, the state’s education budget will lose $160 million in the 2013-15 budget cycle, and $40-$50 million per year following – and time is running out.

The Department of Revenue, which had been waiting on legislative direction before sending out the checks, was taken to court by the wealthy heirs who challenged the estate tax in the first place. The court ruled the DOR must begin issuing refund checks immediately. Mike Gowrylow, a DOR spokesman, says they will now begin to send the checks out. “We’ve decided that we can’t hold off any longer and will begin refunding the money.”

However, there appears to be disagreement in the legislature about how to close the loophole.

House bill 2064 – which heads to the House floor for a full vote today – simply reinstates the legislature’s intended meaning when it enacted the estate tax, and closes the QTIP loophole. The House bill makes no changes to the estate tax filing threshold – currently $2 million.

By contrast, Senate bill 5939 follows the maxim “Never let a good crisis go to waste.” While the Republican-sponsored SB 5939 closes the QTIP loophole, it also raises the threshold of the estate tax – doubling it to $4 million by 2016, and then applying the federal threshold thereafter. The federal estate tax was repealed in 2010, but has since been reinstated and the threshold is now more than $5 million.

The House and Senate will have to reconcile their bills – quickly – to avoid punching a $160+ million hole in education funding for their upcoming 2013-15 budget cycle. After all, with crumbling state infrastructure, tuition that has doubled in less than decade, and the state failing to adequately fund K-12 education, now isn’t a good time to give another tax break to Washington’s wealthiest 300 sons and daughters.

Originally published at Washington Policy Watch

Alaska Senator Mark Begich introduces proposal to scrap the cap, move to better CPI measure

Sitka News reports Senator Mark Begich (D-Alaska) is prepared to introduce legislation to protect and preserve Social Security benefits for future generations, while shoring up the system’s long-term solvency.

Senator Begich introduced his plan in response to President Obama’s proposal to switch to the Chained CPI, which would cut annual cost-of-living increases for seniors and veterans on Social Security. The Senator’s plan to shore up Social Security is based on two key elements:

  • Scrap the cap on taxable income: ”Current law sets a cap on contributions for higher income earners; this year they quit paying when their wages hit $113,700. By phasing out this cap, which has essentially become a tax loophole, more people would pay into Social Security all year long.  As a result, the solvency of the trust fund would be extended for about 75 years.”
  • Change to the CPI-Elderly, instead of the Chained CPI: “Replace the current system for calculating cost-of-living adjustments to more accurately reflect the cost-of-living for seniors.  This would replace the consumer price index (CPI) for workers with a CPI-E, which reflects costs for seniors and would increase their benefits.”

Scrapping the cap on taxable income would all-but guarantee Social Security’s long-term financial solvency by ensuring all Americans contribute equally to Social Security. Currently, people earning over $113,700 don’t pay into Social Security on that income – and capital gains income is not subject to Social Security taxes. For example, in 2012 Wal-Mart CEO Mike Duke paid a Social Security tax rate of 0.5% on $1.3 million in wages, while Wal-Mart retail employees paid the full rate of 6.2% on their average wages of $22,100. Scrapping the cap would ensure workers and CEOs alike pay the same rate into Social Security.

Switching to the CPI-Elderly (CPI-E) is a technical fix that will ensure cost-of-living adjustments more accurately reflect costs seniors face. While the current CPI measure assumes seniors are buying iPads and new cars, the CPI-E would give greater weight to health care costs and prescription drug prices on which seniors spend more than the average consumer.

Sen. Begich’s bill will likely be introduced this week.

Originally published at Washington Policy Watch

Sickening: Why Walt Disney World and Olive Garden are exactly the wrong places to take your family

Walt Disney World and Darden Restaurants (which owns restaurant chains like Olive Garden and Red Lobster) both have happy-looking public faces regarding the health of the people they employ. But behind the scenes, they’re doing everything they can to deny people working in Florida the right to earn basic benefits like paid sick days on the job.

This all started in mid-2012, when lobbyists for Disney and Darden colluded with county commissioners in Orange County, FL (a text message plot now known as “Textgate“) to keep a paid sick days measure off the ballot. A Florida judge ruled the county commissioners acted illegally, and ordered the measure back on the ballot.

But wouldn’t you know it? The 2012 ballots had already been printed. That bought Disney and Darden some time – which is exactly what they wanted. Over the next few months, Disney and Darden lobbyists worked with Republican legislators in Florida to draft a law to prohibit local governments from enacting paid sick days legislation. That bill has now passed the Florida Senate and is headed to the House for final approval.

The Huffington Post reports family advocate group MomRising.org is spearheading the effort to fight back. From Huff Po:

[MomsRising] claims that this week, Disney World refused to accept a petition with 6,000 signatures demanding that the resort stop pushing legislation that stands in the way of earned sick time initiatives. Neither Darden nor Disney World responded to voicemails from The Huffington Post requesting comment.

Here’s the rub: Last year, Darden Restaurants paid its CEO $8,100,000, while the average employee in one of their restaurants earned just $25,463. That’s nearly $3,900/hour for the CEO while most of their employees scrape by on just over $12/hour – without basic protections like paid sick days or health care benefits. The CEO-to-worker pay ratio is even worse at Walt Disney Co., where CEO Rober Iger pulled down more than $19,000/hour last year, while his employees averaged $31.

Something to consider the next time you go out to eat or plan a family vacation.

Originally published at Washington Policy Watch

Senate approves potential repeal of Paid Family Leave, bill moves to House

It hasn’t been a good week for working families in the Washington State Legislature.

On Monday, the Senate passed an amended version of SB 5903, which will repeal the Family Leave Insurance system if a funding mechanism is not identified in 2014. The bill will create a taskforce of eight legislators to fund the system. If no agreement is made, family and medical leave will be automatically repealed in 2015. The bill now moves to the House for consideration.

However, the AP reports that the Rep. Tami Green, the prime sponsor of a bill to fund and implement the Family Leave system, does not believe there’s support among majority Democrats in the House to repeal the law outright. Five Democrats in the Senate voted in favor of the current bill, including Sen. Hargrove (D-Port Angeles), Sen. Brian Hatfield (D-Raymond), Sen. Steve Hobbes (D-Lake Stevens), Sen. Rodney Tom (D-Medina), and Sen. Tim Sheldon (D-Kitsap).

The Paid Family Leave law approved in 2007 would have established a paid parental leave system in Washington state, providing a benefit of $250/week for 5 weeks to new parents. However, the bill was passed without a funding source, and implementation was delayed when the recession hit.

The United States is just one of three countries – joined by Papa New Guinea and Liberia – to not guarantee paid parental leave benefits, although maternity/parental leave systems are in place in California, New Jersey, Hawaii, Rhode Island, and New York.

Originally published at Washington Policy Watch

Chained CPI for Social Security means forcing seniors, veterans onto food stamps

If you follow this blog, you already know the Chained CPI – a proposed change to Social Security’s annual cost-of-living adjustment (COLA) – is really just backdoor attempt to cut Social Security benefits. A retiree who lived to age 85 would see a cumulative benefit cut of nearly $14,000.

The Congressional Budget Office estimates that such a cut would net the federal government $127 billion over the next ten years. That’s equivalent to 2% of the U.S. national defense budget over the last ten years. But cutting earned benefits will also mean higher costs. The CBO estimate also includes an increase in SNAP benefits (food stamps) of $2.8 billion over the same time frame:

Because SNAP benefits are calculated based on a formula that considers income, a decrease in income will increase SNAP benefits.

Since 2 in 5 seniors rely on Social Security for nearly all their income, it’s no surprise that cutting Social Security benefits by hundreds of dollars per year will mean they struggle to afford groceries.

income sources of seniors, 2010

2 in 5 seniors have an annual income at or below $20,000 – and 80% of that income comes from Social Security.

Switching to the Chained CPI will hurt millions of American retirees and veterans – the very people who have earned their benefits over a lifetime of hard work and/or military service.

So let’s call the Chained CPI what it really is: the “force seniors on food stamps” program – since that’s exactly what will happen if it’s implemented.

Originally published at Washington Policy Watch

Washington’s GET program: An accidental bulwark against higher tuition for STEM degrees

In 2011, the Washington State Legislature approved a bill that paved the way for public colleges and universities to start charging differential tuition: college degrees that cost more to confer, like engineering and business, would be subject to higher tuition than lower-cost degrees like history or English.

Rep. Larry Seaqust, Chair of the House Higher Education Committee and bill sponsor

Rep. Larry Seaqust, Chair of the House Higher Education Committee and sponsor of a bill to roll back differential tuition.

The most damning criticism of differential tuition is that by raising the price, it limits access to popular programs – particularly STEM degrees (science, technology, engineering, and math) – that many states, including Washington, are trying to encourage people to get in order to create a more highly-trained workforce.

As it turns out, that criticism didn’t stop Washington’s proposed differential tuition in its tracks. But fortunately for Washington students and families, there is another (accidental) bulwark protecting them from this backdoor tuition increase: the Guaranteed Education Tuition (GET) program.

As we’ve written  before, GET is Washington’s pre-paid tuition program. It allows parents and family members to pre-fund their child’s college education. Typically, families purchase credits for a child, who is later able to attend any Washington state college or university with tuition already paid.

What stopped differential tuition is the fact that GET’s pre-paid tuition credits don’t differentiate between degrees. (That would be impossible, since no one can predict what degree a child will go on to attain.) So, differential tuition can’t be implemented as long as GET is available to Washington families.

Beginning this year, Senator Rodney Tom – an original sponsor of the differential tuition bill in 2011 – wanted to drop the ax on GET, but he didn’t say it was to implement differential tuition. Instead, Tom claimed GET is a  massive liability to the state – a statement that came under serious scrutiny when state actuaries reported GET will likely be fully solvent in two years (despite the long and deep recession of the past two years).

At an October 2012 meeting of the Advanced Tuition Payment Advisory Committee Meeting, Senator Tom stated that Washington state should be focused on increasing STEM grads and expanding enrollment. It’s not clear how instituting differential tuition, which would raise tuition for STEM degrees, or ending the GET program, which would limit access to higher ed, would achieve either of these goals. At the University of Illinois, for example, a chemistry student will pay 33% more for their degree than someone studying journalism. How higher prices are supposed to expand enrollment remains a mystery.

Last night, the Washington State Higher Education Committee made clear their opposition to differential tuition – and perhaps their support for GET – with a 16-0 vote to prohibit differential tuition. The committee includes 9 Republicans and 10 Democrats. (There were 3 abstentions.) In the Senate, where Tom is Majority Leader, the companion bill to prohibit differential tuition (SB 5548) has not yet received a hearing.

Call it an accident of history if you like – but Washington’s students and families are lucky to have the GET program as a roadblock to differential tuition schemes.

Originally published at Washington Policy Watch

No sense of citizenship – or shame: Wealthy corporate CEOs want Social Security, Medicare on chopping block

I like to consider myself a sensible guy – someone who can set aside my own self-interest to recognize other people’s need, concerns and desires – particularly when it comes to politics and public policy. But in this case, I’m really struggling to identify with America’s leading CEOs.

The Business Roundtable represents 200 of our country’s top CEOs, and they’ve recently unveiled their plan for tackling the federal deficit: raise the Social Security retirement age from 67 to 70, and the age for Medicare from 65 to 70. The insular arrogance of that idea is, frankly, hard to stomach.

The CEOs represented by the Business Roundtable run some of America’s largest corporations. Their board of directors is a veritable who’s who of American businessmen, with compensation ranking among the highest in the world. Here are just a few of the Executive Committee members:

  • JPMorgan’s Jamie Dimon, who played a starring role in Wall Street’s greed-fueled recession of 2008.
  • Duke Energy CEO Michael Duke who, in spite of a federal corporate income tax rate of -3.9%, begged Congress for a corporate tax holiday, saying ”Duke Energy alone has $1.2 billion held hostage overseas.”

These executives will never have to worry about balancing a meager retirement annuity with a modest Social Security benefit. Nor will they ever have to worry about finding affordable health coverage at age 63 if they get laid off during a recession.

Don’t get me wrong – I congratulate these executives on their business success. I wish more people could have the economic security they enjoy in retirement. But remember that the vast majority of these executives make more in one day than the average retiree gets from Social Security in an entire year: a meager $14,760.

Consider that in their retirement, instead of a choosing between blood pressure medicine and groceries, these executives will be debating Bermuda or the Bahamas. And instead of wondering how much longer they’ll be able to afford heating oil, they’ll wonder if the accountant remembered to pay the maid and landscaper. I don’t begrudge them a bit for this, but I do begrudge them proposing something so askew from the retirement reality millions of Americans are facing.

Even the conservative American Enterprise Institute was puzzled by their proposal. One expert there stated, “Raising Medicare to 70 will be widely unacceptable to the public. And raising Social Security to 70 is just as untenable. It shows how insensitive business leaders are.”

Not surprisingly, the simplest and easiest fix for Social Security – scrapping the cap – was purposely not included in Business Roundtable’s proposal. That idea, which would simply require those earning more than $113,000 to pay into Social Security – like every other American does – would “limit economic growth” according Caesar’s Entertainment CEO Gary Loveman.

I was raised to believe, perhaps naively, that setting aside my own self-interest in the interest of something bigger is a basic duty of citizenship in America. But the deplorable selfishness shown by these CEOs is a reminder that citizenship is no longer a requirement of the political process, and unchecked greed knows no shame. So much for sharing the pain, I guess.

Originally published at Washington Policy Watch

How the Chained CPI is a stealth cut to Social Security benefits

The Center for Economic Policy Research (CEPR) has published a brief on one of the proposed changes to Social Security under the “fiscal cliff” deal – this one known as the “Chained CPI.” The Chained CPI is a bit complex, but here’s the bottom line: it would cut benefits for Social Security recipients by shrinking annual cost-of-living adjustments.

CEPR calculates that it would equal a 3% benefit cut over 10 years, a 6% benefit cut over 20 years, and 9% after 30 years. For the average worker retiring at age 65, this would mean a cut of about $650 each year by age 75 and a cut of roughly $1,130 each year at age 85. This is especially significant given 3-out-of-5 seniors rely on Social Security for more than half of their income.


Some argue the Chained CPI is a more accurate calculation of inflation, but this is not the case for seniors. As we reported in an earlier post, seniors tend to spend more money on health insurance, hospitals, prescription drugs, and nursing care – expenses that are not taken into account by the current CPI calculation. The Bureau of Labor Statistics, which manages the CPI indices, has created an experimental index called the CPI-Elderly, which more accurately reflects the costs faced by seniors. The CPI-Elderly shows a rate of inflation about 0.3% higher than the current CPI calculation.

CEPR also reports the Chained CPI amounts to a stealth tax increase on all Americans, but especially those at middle and lower incomes: “For example, workers with incomes between $10,000 and $20,000 would experience an increased tax burden of 14.5 percent, while those with incomes over $1,000,000 would just see an increase of 0.1 percent.”

Read more from The Chained CPI: A Painful Cut in Social Security Benefits and a Stealth Tax Hike

Originally published at Washington Policy Watch

What about the Middle Class?

The title of recent article in Bloomberg Businessweek says it all: Top 1% Got 93% of Income Growth as Rich-Poor Gap Widened.

Much of this imbalance in income growth can be explained by looking at where the growth has happened. Big gains in the stock market have buoyed most indexes close to pre-recession levels, but home values remain largely stagnant or continue to drop. Of course, few middle- and lower-class Americans have the resources to invest on Wall Street – much of their wealth is tied up in their home value – so the current system favors wealthier Americans.

share of income growth, u.s. 2010

As the above graphic shows, the bottom 99% of Americans saw an average income growth of just 7% in 2010. Separated further, the bottom 80% of Americans actually saw their share of income decrease – with the poorest 20% of Americans experiencing a decline of 20% since the 1980s.

From Bloomberg:

The earnings gap between rich and poor Americans was the widest in more than four decades in 2011, Census data show, surpassing income inequality previously reported in Uganda and Kazakhstan. The notion that each generation does better than the last — one aspect of the American Dream — has been challenged by evidence that average family incomes fell last decade for the first time since World War II.

In this recovery it’s proved better to own stock than a house. For stockholders like Hemsley, the value of all outstanding shares has soared $6 trillion to $17 trillion since June 2009, the recession’s end. Even after a recent rebound, the value of owner-occupied housing, the chief asset of most middle- income families, has dropped $41 billion in the same period, part of a $5.8 trillion loss in home values since 2006.

Read the full article here.

(Originally published at Washington Policy Watch)