It appears that Generation Greed is responding to the upcoming elections the way it always does — by selling out the future of the country and younger generations. The Obama Administration came in promising investment in America's future, funded by borrowing, through the Build America Bond Act. But older generations don't want to build America, they want to securitize it as a way of getting more for less right now. And they are becoming more and more desperate as the diminished future ensured by 30 years of their past decisions continues to arrive.
So now, according to the Wall Street Journal, the Obama Administration proposes that the Build America Bond act be made permanent, with an ongoing federal subsidy (funded by the federal debt) for state and local bonds (more debt) issued not just for capital improvements (which might provide some benefit in the future when younger generations are forced to pay back the debt) but also to pay for more services and lower taxes right now. This might be the one Obama proposal that doesn’t get filibustered, as it is one that consistent with Republican principles. Not theoretical principles from the far off Republican past, actual ones from the past 30 years.
The article is behind a pay wall, but here is what it says. “President Obama will ask Congress to make permanent a temporary bond program to help state and local governments finance projects…State and local governments have issued more than $64 billion in so-called Build American Bonds in 2009.”
Typical municipal bonds are exempt from federal taxes. For at least 30 years policy wonks have pointed out that the federal tax subsidy to rich households who buy them vastly exceeds the interest rate savings for state and local governments, making the exemption a subsidy by everyone else to the rich. The Build America bonds, in contrast, are federally taxable, but the federal government pays 35 percent of the interest. Without the tax subsidy, the interest rates are higher, making the bonds a better option for low and moderate-income households in lower income tax brackets, and tax exempt pension funds and insurance companies. The Obama Administration proposes cutting the federal share of the interest to 28 percent, and says that it will not cost the federal government anything, because it would have lost that much or more in taxes if tax-exempt bonds had been issued instead. So far so good.
But according to an official cited by the WSJ, the administration will also propose to allow the bond proceeds be used for today’s operating expenses, such as payroll (and presumably pensions), not just capital investments for tomorrow. Thus, in the future younger generations would be paying for the bonds, would would have nothing to so show for it.
This seems to be a response to the coming state and local government pension and debt disaster. Today’s taxpayers and service recipients are facing disaster because for more than a decade the politicians they funded gave members of public employee unions enhanced pensions, without objections from past taxpayers because they didn’t pay for them. Now the Obama Administration proposes more borrowing to push the disaster off a few years more, while increasing it even more. Combined with the likely buyers of these bonds, this will also ensured that if and when state and local governments default on their debts, low, moderate and middle-income households are hurt in addition to wealthy households. This follows the Administration’s decision to allow some of the (borrowed) money from federal stimulus package to be used for operating costs (such as transit pensions and retiree health care) rather than the transit system renewal that is required to stave off collapse.
The article cites Treasury Secretary Geithner: “By making Build America Bonds a permanent and expanded financing tool for state and local governments, we’re investing in our country’s long term economic growth in a cost-effective way.” So how does refinancing existing bonds, rather than paying them back on schedule, and using borrowed money for operating costs, “invest in our country’s long-term growth?” It doesn’t. It’s a con.
While most of those in Congress (and the state legislature) are members of Generation Greed, the richest generations in American history, Obama and Geithner are my contemporaries. Generation Apathy, the first to have (with the exception of those on top) lower inflation-adjusted pay than the generations preceding, the first to be on the wrong end of multi-tier contracts and the 1983 deal to “save Social Security.” The response, for the majority of us, has been to just worry about ourselves and not try to change public policy in a more responsible direction. Which really means that younger generations will be even worse off. So much for “change” and “facing problems that have been ignored too long.”
Speaking of Social Security and Generation Greed, according to Bloomberg News “Senate Republican Leader Mitch McConnell endorsed a deficit-cutting commission that would focus only on reducing spending, including for the Medicare and Social Security programs, and take any tax increases off the table. ‘Looking at the entitlements, all of them, is important,’” he said. Isn’t he the Republican leader who led a filibuster objecting to any health care reform that would offer any help of any kind to anyone who was not over 65? Aren’t those the same Republicans who sold that blanket opposition as necessary to prevent any reduction of Medicare benefits to those now over 65, and those approaching Medicare eligibility? Aren’t these the Republicans who just a few years ago passed the biggest increase in spending in decades, the prescription drug benefit for today’s seniors, and called any attempt to even question any spending on Medicare “death panels.” What is ideologically inconsistent is generationally consistent, and has been for 30 years.
And now we see that sure, Social Security and Medicare benefits must be reduced – reduced far more than anyone would say publicly. But only for younger generations, who are paying for something they will never get. Their taxes will go to pay off the debts that the “Reagan told us deficits don’t matter” party has been running up for 30 years.
I wonder what the birth year cutoff will be between the beneficiaries and victims in a plan McConnell would support? Would it be 1955? 1958? McConnell was born in 1942, and so might be happy to cut off the baby boomers in their entirety, but the first half of the baby boom, the 1960s generation, has done little other than look out for itself and charge the cost to the future ever since that decade, so I’d put the cutoff date some time after. Either way, you can better believe that older generations would not be asked to pay or give up anything, no matter how well off they were.
The Democratic alternative? Vastly higher taxes on younger generations once their generation has retired, rather than vastly lower benefits, mostly likely. The bi-partisan compromise? A big tax increase on non-rich wage earners, taking away from their ability to save for their own retirement, and lower benefits for them when they get old, perhaps with a much later retirement age. As in the 1983 deal, which allowed the federal government to take in lots of excess money ever since, all long-since spent and not available for those who paid. But no one speaks of the past now. That’s what they count on.
Younger generations will face old age in poverty and ill health before dying younger, you have my “master of the obvious” prediction. Because few in power objected to kicking the can down the road, and no one will object when those who have benefitted exempt themselves from all required sacrifice. In a just world, any member of Congress who proposed reductions in benefits for future generations without also reducing benefits or increasing taxes on the currently retired – and giving up their own federal pensions and retiree health benefits – would be condemned as evil. But the mainstream media is read and written by Generation Greed, and younger generations continue to be clueless.
Speaking of old age benefits, you may have read about Governor Paterson’s new plan for the coming local pension crisis in the rest of New York State. That crisis could cause taxes to soar to the level of New York City, and/or public services to degrade to the level of New York City, and/or starting pay for new public employees to fall to the level of New York City. Paterson’s solution? Allow local governments to simply not make the required pension contributions in excess of 8 percent of payroll for most workers, and 17 percent for police and fire workers. More than that is apparently too much to bear. In exchange for not making the payments required to keep the pension funds solvent, local governments in the rest of the state would end up owing much, much more later. But what if they refuse to pay, and get the majority of the state legislature to back them? Then the entire state, including New York City, would have to pay instead. So this is a clever way of forcing future New York City residents and businesses to pay for past pension promises in the rest of the state, even as they are burdened by their own separate pension system.
How burdened? What share of payroll does New York City divert to the pension funds, rather than using it for current workers providing services? The city's recently released budget for FY 2011 tells us. For police and fire, not the 17 percent that Governor Paterson believes to be the maximum the rest of the state should pay: 57 percent for policy and 68 percent for fire. For other employees, not the 8 percent that Governor Paterson says belies is the maximum the rest of the state should pay: 16 percent for most NYC workers, 36 percent for sanitation, 31 percent for correction, and 28 percent for teachers. You’d think residents and businesses in the rest of the state could at least match this level of sacrifice before mortgaging their future, and ours. Unless you understood the difference between those who matter and have representatives in Congress and the New York State Legislature, and those who don’t.
By the way, I read the United Federation of Teachers has a plan to save the city money. Allow New York City teachers, who just got a deal to allow them to retire at 55 instead of 62, to allow even earlier? So how would that save the city money? Well, the city could just cut the quality of education instead of replacing them, allowing remaining teachers to claim they were overworked and justify doing a less good job. Or, it could not pay the cost of all those existing retirees, assuming it to be zero – until later, when the cost would be a multiple of what was saved. This, by the way, has been done before, over and over.
Public employees in the rest of the country pay a large share of their own pay into the pension funds; those in New York pay almost nothing. Ex public employees in most of the rest of the country pay state income tax on their retirement income at the same rate as working serfs in the private sector pay on their own wages. Public employees in New York are exempt from state and local income taxes. Public employees openly talk of their dream of having the city over a barrel and getting to walk out the door early and move away. And who is going to stop them? Who in Albany would even object? Eliot Spitzer, who signed the deal to allow teachers to retire at 62 rather than 55? Andrew Cuomo, the next candidate of all the existing interests? Rich Lazio, for whom there is no such thing as excess government spending outside New York City and no legitimate public services or citizens deserving of a fair deal in it? After all, Generation Greed will be moving on soon itself, and they don’t want to leave anything worth having behind.
If they can’t be stopped, because they are all in on it, will people finally wake up and at least make them fess up to the past decisions that led to our current circumstances, and the future effect of decisions today? Shouldn’t they be forced to say yes, future generations will be worse off that we are, because we partied at their expense?