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Why Are We Paying Moderna Twice For An Unproven Vaccine?

Moderna, a relatively new biotech firm, generally is seen as the U.S. frontrunner in developing a coronavirus vaccine.

It trails several Chinese companies.

Based in Cambridge, MA, Moderna should certainly get an award for milking the government.

It doesn't matter if the vaccine works. Moderna already was paid twice over.

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What America Needs Is A Bold Plan To Improve Social Security

The Social Security 2100 Act proposed by Connecticut Representative John Larson is getting closer to being passed by the House of Representatives. It now has more than 200 co-sponsors. If it were to be approved and become law, it would both improve the program’s benefit structure and its financial picture.

The biggest item on the benefit side is that it guarantees a benefit of at least 125 percent of the poverty level for anyone who has worked for at least 30 years. The logic here is straightforward; we should be able to ensure that anyone who has put in a full lifetime of work will not be in poverty in their retirement years.

The second big change on the benefit side is that it changes the cost-of-living formula for adjusting benefits by tying it to an index of consumption items purchased by the elderly rather than the overall Consumer Price Index. The inflation adjustment for Social Security benefits has long been a major issue, with many politicians wanting to change the formula to reduce benefits.

Updating the cost-of-living formula does not necessarily raise or lower benefits. It is simply an effort to make the indexation reflect the changes in the actual cost of living seen by the elderly. We know consumption patterns of senior citizens differ substantially from the population as a whole.

The third feature on benefits is a change in the formula that will increase average benefits for a bit less than $400 a year. This has provoked some opposition since this increase will go to not just lower-income seniors, but also middle-class and relatively affluent seniors.

Opponents of hiking benefits argue that typical seniors are actually doing quite well. New research from the Census Bureau, based on tax filings, found that seniors were actually doing somewhat better than data from surveys indicated.

While this was good news, there is an important qualification to this finding. By far the main reason that income for seniors was higher than previously reported is that the survey data missed a lot of income from traditional defined-benefit pensions. In other words, the Census study didn’t find seniors had hundreds of thousands in savings that were not being picked up in the surveys; the story was defined benefit pensions.

This matters because we know that traditional defined-benefit pensions are rapidly disappearing. This means that the picture of middle-class seniors retiring with little other than their Social Security to support them still looks right. The average benefit this year is just over $17,600, certainly not enough to maintain a middle-class lifestyle. For this reason, the modest benefit increase proposed by Larson is very reasonable.

Larson proposes to cover this increase, as well as the projected Social Security shortfall, by having a gradual increase in the payroll tax and applying the tax to very high-income workers. On the latter point, the income subject to the payroll tax is currently capped at just under $133,000. This means that someone earning millions of dollars each year would pay no more in Social Security taxes than someone earning $132,900. Larson’s bill would make wages over $400,000 subject to the tax.

His other change is an increase in the payroll tax of 0.1 percentage point annually, split between workers and employers. This increase would continue for 24 years, for a total increase of 1.2 percentage points on both the worker and the employer.

While this is a middle tax increase, it is much smaller than increases we saw in the decades of the 1950s, 1960s, 1970s, and 1980s. More importantly, if we can sustain decent wage growth, it is a tax that should be easy to bear.

After adjusting for prices, wages have risen 1.5 percent annually over the last five years. If we can continue this pace of wage growth, the Larson bill would take back much less than 10 percent of the pay increase in taxes. Of course, wage growth may not continue, but then our focus should be on getting decent wage growth, not blocking revenue needed for Social Security.

In short, this is a well-considered bill that would accomplish good for current and future retirees. Congress should move on it.

Dean Baker co-founded the Center for Economic and Policy Research (CEPR), where he is a senior economist. His areas of research include housing and macroeconomics, intellectual property, Social Security, Medicare and European labor markets. He is the author of several books, including Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. His blog, Beat the Press, provides commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in economics from the University of Michigan.

This article was produced by Economy for All, a project of the Independent Media Institute.

 

Welfare For Wall Street: Fees On Retirement Accounts

Reprinted with permission from AlterNet.

Most of us are willing to help out those who are less well off. Whether it comes from religious belief or a sense of basic decency we feel are an obligation to provide the basic necessities of life for the poor. But how would we feel about being taxed $1,000 a year to provide six figure salaries to people in the financial sector? Although no candidate to my knowledge has ever run on this platform, this is the nature of the retirement system the federal government has constructed for us.

Twenty or thirty years ago, most middle-class workers had defined benefit pensions. This meant that they could count on a fixed benefit that was some fraction of their average salary during their working years. For example, a person who spent thirty years at a company may be entitled to a pension that was equal to 60 percent of their average salary over their final five years of work.

With a defined benefit pension system, most of the risk was born by the employer. The worker did not have to worry about the stock market being down when she chose to retire. Nor did it matter to her if the pension made bad investment choices; the employer was liable for the promised benefits, unless it went bankrupt.

The virtues of the defined pension system can be exaggerated, although recent research indicates it provided more retirement income than we had recognized. Workers who changed jobs frequently or worked part-time rarely qualified for pension coverage. This excluded many women, African American, and Hispanic workers. But for those who were eligible the defined benefit system provided a substantial degree of retirement security.

That is not the case with the system of 401(k)s and IRA(s) that replaced the defined benefit system. Many workers are never able to put enough into their retirement plans to accumulate much towards retirement. In addition, there is no way to completely avoid the risk that the stock market can take a plunge as workers approach retirement. And, some people will inevitably make bad investment choices.

However there is one item that can be controlled. This is the fees that workers pay on the money they have in these accounts. These fees average 1.0 percent a year on the almost $6 trillion in 401(k) accounts managed by employers. There is a wide range for the fees on the $8 trillion held in IRAs, but many people pay more than 1.0 percent annually on these accounts as well.

If a 1.0 percent annual fee seems like a small deal, then you should probably let someone else manage your account. Suppose you have accumulated $100,000 in a 401(k) or an IRA, a reasonable amount for a middle class person nearing retirement. A 1.0 percent fee means you are paying $1,000 a year for someone to hold your money and send you quarterly statements telling you how much money you have in your account.

It’s important to realize that this 1.0 percent fee is not for actually managing the money. These accounts typically offer a range of funds, each of which charges its own fee to cover the cost of managing the fund. For example, a 401(k) might offer a variety of stock, bond, and money market funds in which you can invest your money. Each of these funds will charge a fee that covers the cost of investing the money placed in the fund. The 1.0 percent fee charged by the 401(k) is an addition to these fees.

What is the actual cost of holding your money and sending out quarterly statements? Vanguard, the biggest of the investment funds, doesn’t charge its customers anything to manage their accounts. They skim a small amount off the fees charged by the individual funds to cover overhead costs. This means that the 1.0 percent, or $1,000 a year, that 401(k) holders pay to manage their account is entirely an excess charge.

Think of it like going up to a person begging on the street and handing them $1,000. Only in this case the person getting the money probably has more money than you do.

There are ways to rein in these costs. Several states, including California, Illinois, and Oregon, have passed legislation that allows workers in the private sector to buy into low cost funds managed through the state. These public systems are supposed to go into operation over the next few years. Presumably other states will follow this model if these systems prove successful.

At this point, the biggest question is whether these programs will get off the ground. The Trump administration has been trying to sabotage them, using an interpretation of the Employee Retirement Income Security Act (ERISA) that would ban the state-run funds. Apparently Trump is concerned that his friends in the financial industry could not survive if they faced competition from the government.

The future of these publicly-run systems is unclear at this point. It would be a huge step forward if 401(k) and IRA managers simply had to disclose their fees in their quarterly statements, but like cockroaches, they want to remain in the dark.

Anyhow, for now you should just get used to the idea of these big handouts to the financial industry. You can console yourself with the thought that these are people who probably could not earn an honest living without help from the government.

 

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

 

Trump And Ryan Racing To Wreck The Federal Government

Reprinted with permission from the Center for Economic and Policy Research.

The budget proposal put forward by the Trump administration has been widely attacked on a variety of grounds. It is clearly making ridiculous assumptions on tax revenue, which don’t make sense even with its implausible assumptions on economic growth. It also calls for large cuts to a variety of programs on which low and moderate income families depend like food stamps and Medicaid.

But in addition to these features, the budget also calls for a major downsizing of the federal government as we know it. If we pull out Social Security, Medicare and Medicaid, and the military, the rest of the government is projected to shrink from 6.3 percent of GDP at present to 3.6 percent of GDP by 2027. This 3.6 percent of GDP includes the cost of education programs, infrastructure, the Justice Department, research and development, national parks, the Environmental Protection Agency, the Food and Drug Administration, TANF, foreign aid, and all the other things we think of as the federal government.

It doesn’t seem plausible that we can downsize the federal government by more than 40 percent relative to current levels and still expect it to function. As much as Republicans may hate the federal government, they still expect it to enforce laws, keep our food and drugs safe, ensure the infrastructure is usable, and support basic research in health care and other areas. This cannot be done if we downsize the government as projected in the Trump budget. This is either a joke or a plan to ensure that the government no longer provides basic services.

Unfortunately, the Trump budget is not the first time the Republicans have proposed largely eliminating the federal government. Paul Ryan went even further in the budgets that he repeatedly proposed as head of the House Budget Committee and got the Republican controlled House to approve.

Ryan’s budgets virtually eliminated everything except Social Security, Medicare and Medicaid, and the military by 2050. According to the Congressional Budget Office’s analysis of the Ryan budget (done under Mr. Ryan’s supervision), spending on everything other than Social Security, Medicare and Medicaid would be reduced to 3.5 percent of GDP in 2050. With military spending likely running in the neighborhood of 3.0 percent of GDP, this left around 0.5 percent of GDP for everything from education to foreign aid.

Rather than earning Ryan and the Republicans ridicule, these proposals for eliminating the federal government won him widespread applause in Washington policy circles. Folks like The Washington Post editorial page writers welcomed Ryan as a serious budget wonk. The deficit hawk Peter Peterson crew even gave Ryan an award for his budget plans.

Obviously, they could see that Ryan’s plan was either a ridiculous lie, assuming that he had no intention of following through on his plans, or alternatively incredibly dangerous if he was serious. But the Washington establishment types were so anxious to have a politician who was prepared to take an axe to large chunks of the government that they didn’t care about such details.

Given this background, the Trump administration can hardly be blamed for thinking that it could get away with the same sort of dishonesty that brought Paul Ryan to the top echelons of the Washington power structure. If it wants to show a budget that balances in a decade by making absurd assumptions on tax revenue and projects downsizing the federal government to the point of elimination, this is just par for the course in Washington policy debates.

In this sense, it would be nice if we could say that President Trump is bringing new levels of dishonesty to budget politics, but that is not true. The key problem is that the Washington elite types are dead set on sharp cutbacks to programs like Medicare, Medicaid and Social Security, which enjoy massive public support across the political spectrum. Even the vast majority of Republicans do not want to see cuts to these programs, which is a major reason they voted for Donald Trump in the primaries.

In order to overcome this mass based opposition, the elites are perfectly happy to lie to advance their agenda. They can hardly blame Donald Trump for adopting their tactic.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

Gripes About Excessive Regulations And Taxes Often Are Baseless

By Dean Baker, Tribune News Service (TNS)

WASHINGTON — In the last couple of months we have seen the country whipped up into near hysteria over the virtually nonexistent threat of Ebola.

While the only people who contracted the disease in this country were those who treated a man who died of the disease, tens of millions of people became convinced they were in danger on airplanes and public buses and even routine visits to the supermarket.

Politicians have sought to exploit the same sort of fears with their rants about regulations and high taxes sinking the economy. These complaints have as much foundation in reality as the Ebola threat.

The regulation screed usually focuses on the number of pages in bills like the Affordable Care Act and the Dodd-Frank financial reform bill. While lengthy bills are unfortunate from the standpoint of the trees cut down for the paper, the length bears no relationship to the amount of regulation.

To take one example, the Volcker Rule, which prohibits banks with government insured deposits from engaging in risky speculation, ended up more than three times its original length as the industry carved out an array of exceptions. The greater length was associated with less regulation, not more.

Dodd-Frank was about curbing the sorts of abuses that gave us the financial crisis. Is the argument that we need corrupt banks to foster growth?

The screams over the ACA are equally misguided. The rules have little impact on large firms, the vast majority of whom already offered insurance that met ACA requirements. It might have been expected to affect mid-sized firms that did not previously offer insurance, but none of the complainers has yet presented any evidence that these mid-sized firms have been especially hard hit in the last few years.

The tax complaints require some serious amnesia. Tax rates were higher for most people in the 1990s when we saw the strongest growth in almost three decades. We then lowered taxes in 2001 and saw a weak recovery followed by the collapse in 2008.

The explanation for the continuing weakness is not a surprise to those of us who warned of the housing bubble before the crisis. The bubble had been driving the economy both directly through its impact on construction and indirectly through the impact that $8 trillion of housing bubble wealth had on consumption. When the bubble burst, the economy lost its driving force.

The building boom of the bubble years lead to enormous overbuilding of housing. When the bubble burst, construction didn’t just fall back to normal. It fell to the lowest levels in 50 years, costing the economy more than four percentage points of GDP, amounting to $700 billion annually in lost demand. The loss of housing wealth meant that consumption fell back to more normal levels.

While both housing and construction are up from their low-points in the recession, they are not going to return to bubble peaks, at least not without another bubble. This means that the economy continues to have a huge shortfall in demand. Cutting taxes and reducing regulation will not magically fill this gap in demand.

There are essentially two ways to increase demand. One is directly through more government spending. This is currently taboo in Washington since we are all supposed to hate budget deficits.

The other is by reducing the trade deficit. The way to reduce the trade deficit is to make U.S. goods more competitive with a lower-valued dollar. Talk of a lower dollar is also taboo in political circles.

In short, it is not difficult to find ways to boost the economy; the problem is that politics prevents them from being discussed. Instead we get silliness about taxes and regulation.

Dean Baker is a leading macroeconomist, co-founder of the Center for Economic Policy and Research (cepr.org) and earned a Ph.D. in economics from the University of Michigan in 1988. Readers may write him at CEPR, 1611 Connecticut Avenue, NW, Suite 400, Washington, DC 20009

Photo via Wikimedia Commons

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Campaigning Democrats Must Tell Voters: Obamacare Is Working

By Dean Baker, McClatchy-Tribune News Service

WASHINGTON — Most people don’t like to discuss their failures. The Democrats, however, seem unwilling to discuss their successes. This is the story of Obamacare.

For those who have forgotten, the Affordable Care Act was pushed through Congress almost entirely with Democratic votes. The Republicans objected, insisting the bill would destroy the health care system and the economy.

On the health care side, the Republicans issued dire warnings that the bill would lead to rationing of services, socialized medicine and death panels.

On the economics, they called the bill a massive job killer. It would deter businesses from hiring workers and the workers they did hire would be part time. Exploding health-care costs would both break the budget and the economy. The deficit would explode and insurance premiums would soar.

The widely predicted disaster did not happen.

In the data available so far, enrollment in the exchanges and Medicaid was higher than projected.

Over 8 million people enrolled in the exchanges through the first four months of 2014, far more than the 6 million that had been projected. Almost 5 million more benefited through the expansion of Medicaid. The percentage of people uninsured fell to the lowest level since 1997 in the first quarter of 2014 and is virtually certain to fall much further as enrollment continues to rise.

And costs have been far lower than expected. The Congressional Budget Office has repeatedly lowered its cost projections for the ACA and health care more generally. The savings for Medicare alone are projected to be well over $1 trillion in the next decade.

Private health-care costs have also risen at their slowest pace on record in the last five years, saving most families thousands of dollars on costs. All of the savings cannot be attributed to the ACA, but can anyone doubt that if cost growth had accelerated the Republicans would blame the ACA regardless of the actual cause?

The story of the ACA as a job killer also doesn’t hold water. No one can be happy about the current state of the labor market — we still have a long way to go to recover from the collapse of the housing bubble — but the weak economy can’t be blamed on the ACA.

In fact, job growth has accelerated to a pace of more than 2.5 million a year since the exchanges became operational in January. The faster job growth was almost certainly not caused by the ACA but again, if job growth had slowed the Republicans would be pointing their finger at the ACA.

The part-time story also turns out to be the exact opposite of what the Republicans predicted. The number of people who involuntarily work part time has fallen by more than 20 percent since the bill’s passage. However the number of people who chose to work part time is up.

In particular, the number of people with young children who now have the freedom to work part time because they don’t have to rely on their job for insurance is up by more than 11 percent since 2013.

Republicans used to tout family values, but apparently they no longer think it’s a good thing that parents get to spend time with their children, since it was Obamacare that made this possible.

By any reasonable measure the ACA has been far more successful than expected. However, most people don’t know the successes because the Democrats are too scared to talk about the ACA. They only hear the Republican horror stories, some of which are true and some of which are pure invention.

The reality is that the ACA is a massive program. As with any massive program there will be some bad stories, just as there are some bad stories with Social Security and Medicare.

We have the data to show these bad stories are the exception, but if the Democrats don’t start talking about the successes, most people will only hear the bad stories.

Dean Baker is a leading macroeconomist, co-founder of the Center for Economic Policy and Research (cepr.org) and earned a Ph.D. in economics from the University of Michigan in 1988. Readers may write him at CEPR, 1611 Connecticut Avenue, NW, Suite 400, Washington, DC 20009.

LeDawna’s Pics via Flickr

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GOP Using Whacky Strategies To Derail Affordable Health Care

By Dean Baker, McClatchy-Tribune News Service

WASHINGTON — Ever since its passage in 2010 the Republican Party has made it clear that it will do everything in its power to obstruct the implementation of the Affordable Care Act.

The Republican-controlled House of Representatives has voted 54 times to repeal the ACA. Among other ploys, they have:

-Made up fantasies about ACA created “death panels.”

-Come up with nonsense stories about the law creating a “part-time” nation and being a job-killer.

-Promoted stories about an explosion in insurance prices even as economists struggle to explain the sharp slowing of healthcare costs.

There is zero truth to most of the Republicans’ stories on the horrors of the ACA, but that has little relevance to their efforts to derail the program. They apparently believe that there is no more pressing problem facing the country than making sure that people do not get health insurance.

This is the backdrop that must be kept in mind when considering the Halbig v. Sebelius case that is currently moving through the court system. Most recently the anti-ACA forces got a 2-1 favorable ruling from a panel of the DC appellate court. The same day a Virginia panel ruled 3-0 against Halbig, arguing that the law can remain as is.

The issue in this case is fairly straightforward: there was a mistake in writing the law. The wording of the law says that subsidies in the exchanges are only available in the exchanges that were established by the states.

If interpreted literally, people enrolled in the federally run exchanges would not be eligible for subsidies. This would exclude people in the 34 states that chose not to establish their own exchanges. Only the people in the states that established exchanges would be allowed to receive subsidies.

There is zero doubt that this wording was a mistake. There is no record of any member of Congress, anyone connected with the administration or anyone involved in health care policy advocating that subsidies be restricted to people enrolled in the state exchanges.

Even the Congressional Budget Office assumed without question that the subsidies were intended to apply to people in the federal exchanges when it analyzed the budgetary impact.

In spite of efforts to be careful, there are sometimes mistakes in the writing of a law. Usually courts try to interpret a law in a way that makes sense even if is not literally what the law says.

If the rules on food stamps say beneficiaries can get $250,000 a month in benefits, instead of $250, judges usually would not insist that we give beneficiaries three quarters of a million dollars every month.

However the Republican efforts to sabotage the law have been joined by their allies on the courts, so normal legal rules do not apply. It is likely the case will eventually be decided by the Supreme Court and it is anyone’s guess how they will rule.

While the Republicans are obviously hoping to throw another monkey-wrench into the workings of the ACA, it is not clear this would really work to their advantage.

The people who would be losing subsidies are mostly in Republican-controlled states. They will be losing their subsidies because their governors and/or legislators didn’t want to cooperate with the ACA.

Taking away subsidies from these people will probably be about as popular as taking away Medicare from people in these states. But hey, the Republicans think it is important to keep people from getting insurance.

There are many problems with the ACA. There should be a Medicare-type public option available to people. The program could pay less to the drug companies, saving hundreds of billions of dollars.

But it will only be possible to address these and other issues when the Republicans accept that the ACA exists and stop trying to find whacky legal theories to undo it.

Dean Baker is a leading macroeconomist, co-founder of the Center for Economic Policy and Research (cepr.org) and earned a Ph.D. in economics from the University of Michigan in 1988. Readers may write him at CEPR, 1611 Connecticut Avenue, NW, Suite 400, Washington, DC 20009.

Photo: Speaker Boehner via Flickr

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