Sunday, April 29, 2012

Raise Social Security Benefits

Atrios proposes it. Political Animal seconds it. And all because Joe Nocera is screwed.
My 60th birthday is less than a week and a half away, and if there is one thing I can say with certainty it’s that 60 is not the new 50. 
My body creaks and groans. My eyes aren’t what they used to be. I don’t sleep as soundly as I did just a few years ago. Lately, I’ve been seeing a lot of doctors, just to make sure everything still more or less works. 
I’ve also found myself with a sudden urge to get my house in order — just, you know, in case. Insurance, wills, that sort of thing. Sixty is when you stop pretending you’re going to live forever. You’re officially old. Or at least old-ish. 
The only thing I haven’t dealt with on my to-do checklist is retirement planning. The reason is simple: I’m not planning to retire. More accurately, I can’t retire. My 401(k) plan, which was supposed to take care of my retirement, is in tatters.

Last year, CNN reported that:

A quarter of middle-class Americans are now so pessimistic about their savings that they are planning to delay retirement until they are at least 80 years old -- two years longer than the average person is even expected to live.   
It sounds depressing, but for many it's a necessity. On average, Americans have only saved a mere 7% of the retirement nest egg they were hoping to build, according to Wells Fargo's latest retirement survey that polled 1,500 middle-class Americans.  
While respondents (whose ages ranged from 20 to 80) had median savings of only $25,000, their median retirement savings goal was $350,000. And 30% of people in their 60s -- right around the traditional retirement age of 65 -- that were surveyed had saved less than $25,000 for retirement.
But, as we discussed here,  we can "save" Social Security very easily -- mostly because it's not really in trouble. If we remove the cap on earned income subject to Social Security taxes -- currently set at $106,800 -- we would add about 0.6% worth of GDP back into Social Security. And the expected shortfall is expected to be about 0.6%. It's that easy.

But how could we raise enough money to increase Social Security benefits? We quote ourselves:

The magic words are “unearned income.” The 1% have pulled off a brilliant con over last 30 years, where they’ve been able to convince the government that unearned income – the kind that comes from capital gains, dividends and interest – should not be subject to the kind of taxation that the rest of us face. In terms of income tax, long term capital gains are taxed at 15%, far below the current maximum marginal rate of 35%
But it gets worse in terms of Social Security, because these things have ... never been taxed at all.  
In 2009, the IRS reported that there was nearly $7.7 trillion in income, $5.7 of which was salaries and wages. Now, just because something isn't salaries and wages does not necessarily mean it would qualify as "unearned income," but it does give us a sense of scale. If only half of it was -- $1 trillion -- then applying the 2009 employee Social Security rate of 6.2% would yield an additional $60.2 billion in revenue. 
And all of this increase would be on income -- literally -- that no one worked for.
In 2009, the average Social Security benefit was $1,153 per month (and the maximum was $2,323), and Social Security paid out a total of $686 billion in benefits. So if we were to raise Social Security benefits by 10% -- to a whopping $1268 a month (and a maximum of $2555) -- we'd need another $68.6 billion. As shown above, if we could tax half of unearned income, we'd come up with nearly 90% of that figure. We could probably make up the rest by not invading Iran.

By the way -- ever wonder how much is in the Social Security Trust Fund? It's $2.5 trillion. As the current national debt is about $15.6 trillion, that means that about 16% of our national debt is financed internally, in the form of a special series of Treasury bonds held by the Trust Fund.


Congress Kills No Birds with Two Stones

Kevin Drum notes that the Senate (but not the House) has passed legislation to save the Post Office. As we discussed here, the Post Office is fighting a losing battle against e-mail, so much so that first-class mail now makes up less than 30% of all mail delivered. (The rest -- mostly catalogs and the like -- is sent via standard mail.)


The USPS had suggested a series of sensible changes -- ending Saturday delivery, relaxing delivery times (40% of first-class mail is delivered within one day), and closing a bunch of post offices and postal centers.


We also noted that much of the current "crisis" is fake, as the USPS was forced by (the Republican-controlled) Congress to pre-fund 75 years worth of its employee benefits within a 10-year window. That helped turn the USPS' $1 billion surplus in 2006 into a $5 billion deficit in 2007.


So how did the Senate do? Kevin Drum summarizes (and we editorialize):



Allows USPS to recoup more than $11 billion that it had overpaid into one of its pension funds. 

About time.
Provides early retirement incentives for nearly 100,000 USPS workers.

Good one.
Restructures payments to a health benefits fund for future retirees.

Probably a good thing.
Frees up USPS to offer a broader range of services like delivering beer and wine for retailers.

Okay – but we could do more.
Creates a USPS chief innovation officer.

Absolutely pointless.
Halts the immediate closing of up to 252 mail-processing centers and 3,700 post offices.

Not good.
Forces USPS to preserve overnight delivery of mail sent to nearby communities.

More not good.
Forbids USPS from closing a rural post office unless the next-nearest location is no more than 10 miles away.

Still  more not good.
Places a one-year moratorium on closing rural post offices and then requires the mail agency to take rural issues into special consideration.

Oh, Christ.
Prevents USPS from cutting Saturday delivery for two years, until the agency can prove such a cut is needed as a "last resort."

Seriously?
Transitions from door-to-door delivery to curbside delivery in some areas, such as suburban neighborhoods.

Meh.
Strengthens the appeals process for customers opposed to closing a post office.

Bleh.
Caps bonuses and pay for USPS executives.

Pointless.
Forces USPS to wait until after Election Day to close postal facilities in states that permit voting by mail.

Apparently, these states don’t have mailboxes.
Permits USPS to co-locate post offices in government-owned buildings.
Good.



So, Kevin, what do you think?
There's nothing in there about allowing the postal service to increase postal rates
This is crazy. 
Take a look at countries around the world that have smaller volumes of mail than us: they all charge higher postage rates. They have to. And as volumes keep declining in America, we're going to need higher rates here too. Right now, a first-class equivalent stamp runs 75¢ in Germany, 72¢ in Britain, 82¢ in France, 98¢ in Switzerland, 97¢ in Belgium, and 63¢ in the Netherlands. There's no way that we can stay at 45¢ as volumes decline and pretend that somehow everything will be hunky-dory. 
Agreed.



And the Senate also failed to consider resurrecting the United States Postal Savings System, which was shut down during the patchouli-scented days of 1967, when we all thought the banking system was safe. Not only would the United States Postal Savings System provide another revenue stream, it would require virtually no start-up costs -- the USPS already engages on certain small-scale financial transactions (money orders) and the post offices themselves are already built and fully staffed.

A revived Unites States Postal System would also provide crucial financial services to a population which increasingly can't afford to use banks. An April 2011 study by the Pew Charitable Trust found 16.4% of all Mississippians didn't have a bank. And it's about to get a lot worse.

The New York Times reports that:

An increasing number of the nation’s large banks — U.S. Bank, Regions Financial and Wells Fargo among them — are aggressively courting low-income customers ... with alternative products that can carry high fees. They are rapidly expanding these offerings partly because the products were largely untouched by recent financial regulations, and also to recoup the billions in lost income from recent limits on debit and credit card fees. 
Banks say that they are offering a valuable service for customers who might not otherwise have access to traditional banking and that they can offer these products at competitive prices. The Consumer Financial Protection Bureau, a new federal agency, said it was examining whether banks ran afoul of consumer protection laws in the marketing of these products. 
In the push for these customers, banks often have an advantage over payday loan companies and other storefront lenders because, even though banks are regulated, they typically are not subject to interest rate limits on payday loans and other alternative products.
For example:
When David Wegner went looking for a checking account in January, he was peppered with offers for low-end financial products, including a prepaid debit card with numerous fees, a short-term emergency loan with steep charges, money wire services and check-cashing options. 
“I may as well have gone to a payday lender,” said Mr. Wegner, a 36-year-old nursing assistant in Minneapolis, who ended up choosing a local branch of U.S. Bank and avoided the payday lenders, pawnshops and check cashers lining his neighborhood. 
Along with a checking account, he selected a $1,000 short-term loan to help pay for his cystic fibrosis medications. The loan cost him $100 in fees, and that will escalate if it goes unpaid. 
And it gets worse:
 Lenders are also joining the prepaid card market. In 2009, consumers held about $29 billion in prepaid cards, according to the Mercator Advisory Group, a payments industry research group. By the end of 2013, the market is expected to reach $90 billion. A big lure for banks is that prepaid cards are not restricted by Dodd-Frank financial regulation law. That exemption means that banks are able to charge high fees when a consumer swipes a prepaid card. 
The companies distributing the cards have drawn criticism for not clearly disclosing fees that can include a charge to activate the card, load money on it and even to call customer service. Customers with a “convenient cash” prepaid card from U.S. Bank, for example, pay a $3 fee to enroll, a $3 monthly maintenance fee, $3 to visit a bank teller and $15 dollars to replace a lost card. 
Capital One charges prepaid card users $1.95 for using an A.T.M. more than once a month, while Wells Fargo charges $1 to speak to a customer service agent more than twice a month.
Banks are evil. The Post Office is not. For more on why the United States Postal Savings System is a good idea, check out our earlier post here.

Thursday, April 19, 2012

The Lemmy and Vikram Pandit

Kudos, firstly, to Citibank shareholders. From the New York Times:

Citigroup received a particularly public rebuke on Tuesday when its shareholders voted to reject the bank’s executive compensation package at its annual shareholder meeting. Citigroup was required to hold this vote as part of the “say on pay” provision of the Dodd-Frank Act that mandates that companies hold advisory shareholder votes on their executive compensation pay. While the shareholder rejection is only advisory, it creates a major headache for Citigroup. 
... 
 Last year, the Citigroup board paid Mr. Pandit almost $15 million, plus one-time retention awards with a potential value of $34 million.... [A] proxy advisory firm recommended against Mr. Pandit’s package because parts of his awarded pay were not based on Citigroup’s financial performance, Citigroup stock had declined by more than 90 percent in the last five years and Mr. Pandit’s pay package was not in alignment with that of his peers. 
Citigroup in part defended this pay package by arguing that Mr. Pandit had not received a meaningful salary for the three previous years, being paid only a dollar a year. This was nice of Mr. Pandit, but it must be put against the fact that Citigroup paid about $800 million to acquire Mr. Pandit’s hedge fund, Old Lane, an investment that Citigroup subsequently wrote off completely. And Mr. Pandit received an $80 million payment from Citigroup last year as part of the Old Lane buyout. He’s not about to become part of the 99 percent anytime soon.
As the Lemmy (or LMI, or Lifetime Median Income or $1.36 million  -- the total amount of revenue the median American can expect to make over his lifetime) was defined to make large amounts of money more understandable, let's re-write the last two paragraphs above using the Lemmy.

Last year, the Citigroup board paid Mr. Pandit almost 11 Lemmies, plus one-time retention awards with a potential value of 25 Lemmies.... [A] proxy advisory firm recommended against Mr. Pandit’s package because parts of his awarded pay were not based on Citigroup’s financial performance, Citigroup stock had declined by more than 90 percent in the last five years and Mr. Pandit’s pay package was not in alignment with that of his peers. 
Citigroup in part defended this pay package by arguing that Mr. Pandit had not received a meaningful salary for the three previous years, being paid only a dollar a year. This was nice of Mr. Pandit, but it must be put against the fact that Citigroup paid about 588 Lemmies to acquire Mr. Pandit’s hedge fund, Old Lane, an investment that Citigroup subsequently wrote off completely. And Mr. Pandit received a 59 Lemmy payment from Citigroup last year as part of the Old Lane buyout. He’s not about to become part of the 99 percent anytime soon.

Matt Ygelsias notes that another SEC rule should be coming into play shortly.

Dodd-Frank instructs the SEC to promulgate a rule requiring firms to publish information about the ratio of CEO compensation to median employee compensation.