If news reports are accurate, the worst part of the tentative budget deal reportedly being hashed out between President Obama and House Speaker John Boehner is a proposed cut in the cost-of-living adjustment (COLA) for Social Security. This is a travesty, not least because Social Security is required by law to operate in long-term balance and therefore does not belong in budget talks ostensibly aimed at reducing long-term budget deficits.

We at EPI and our allies in the Strengthen Social Security coalition have written at length about the downsides of a COLA cut. It would have the biggest impact on the oldest retirees, who are often the poorest retirees. It would disproportionately affect disabled beneficiaries, including veterans, many of whom will see the cut cumulate over decades. And it would break the pledge made by many would-be Social Security reformers to shield current retirees, who cannot retroactively save more for retirement.

Let no one be fooled by the pretense that this is a technical adjustment. If COLA cut advocates truly believed that the chain index was more accurate (and the current measure inappropriately provided a real benefit increase over time), there would be no talk of a “birthday bump” to temporarily offset the cut after 20 years.

A lower “chained” COLA is supposed to better account for consumers’ ability to substitute cheaper goods and services in response to price increases. But Social Security beneficiaries spend a greater share of their incomes on necessities such as rent and utilities, so it is not even clear that the current measure understates the ability of beneficiaries to make such adjustments.

Even if it does, it is unlikely that a chained measure that also accounted for beneficiaries’ greater spending on out-of-pocket medical expenses would produce cost savings. The Bureau of Labor Statistics produces an “experimental” index, the CPI-E, which roughly tracks the spending of elderly consumers and has risen faster than the current measure. But neither the current index nor the CPI-E are based on the actual spending patterns of Social Security beneficiaries. Along with some 300 other Ph.D. economists and social insurance experts, we think the Bureau of Labor Statistics should construct one. In the meantime, leave the COLA alone.

If reports are correct, Congress and President Obama are currently considering resolving the fiscal showdown by, among other things, cutting Social Security benefits through changing the cost of living adjustment. It is ridiculous. It is outrageous.

Historically, Social Security, defined-benefit (DB) pensions, and private savings successfully formed the foundation of middle-class retirement security. But DB pensions have declined in the private sector: only 18 percent of workers are covered, compared to nearly 40 percent in 1980. And since the early 80s, stagnant wages have caused the net worth of the bottom 60 percent of households to decline; the typical household approaching retirement age has less than the equivalent of two years’ worth of income saved in a retirement account—if they have retirement savings at all. Social Security remains the most reliable and effective part of the nation’s provision of retirement security, and for many households, retiree benefits averaging less than $15,000 a year are their sole source of income.

Our current deficits largely stem from the economic downturn, the Bush tax cuts, overseas wars, an unpaid-for expansion of prescription drug benefits, and a failure to control the excesses and abuses of the financial industry. In fact, over the last few decades, Social Security was running a surplus, providing cover for ill-advised revenue and spending decisions that Republicans now refuse to rescind. And over the long run, Social Security is legally prohibited from adding to the deficit.

So why are Republicans insisting that resolving the fiscal showdown include Social Security benefit cuts? Read more

Earlier this week, we released the old-school version (i.e., printed book instead of website) of The State of Working America, 12^th Edition. All things economic that are not “fiscal cliff” related are having a hard time getting a public hearing these days, which is understandable. But we think that The State of Working America really should be a required reference for anybody writing about fiscal policy debates.

A key point we at EPI have tried to make over and over again in fiscal discussions is that approaching these issues only within the framework of “spending” and “revenues”—with no sense of the broader economic context— will lead to all the wrong questions being asked and solutions being offered. And The State of Working America provides this crucial broader context.

Take the debate over taxes, particularly tax rates on the highest-income households. The first thing the data in SWA help illuminate is just how modest the changes currently under discussion are, and how low taxes paid by the highest-income households are in historical perspective. For the top 0.1 percent, for example, the average effective federal tax rate in 2011 is only about half as high as it was in 1970, and the changes under discussion would only give these rates the gentlest nudge (see the effect of these cuts starting in 2000) back towards these 1970 rates. Read more

Here’s a sampling of links that EPI’s research team found insightful today:

• “A ‘fiscal cliff’ deal is near: Here are the details” (Wonkblog)
• “Conservatives complain Sandy bill includes millions in unrelated spending” (On The Money)
• “Assimilated by the Peterson Borg” (Paul Krugman)
• “Black jobless rate is twice that of whites” (Washington Post)
• “The Great Manufacturing Skill-Shift Labor Shortage: Hard to See” (Employment Policy Research Network)
• “A Giant Statistical Round-up of the Income Inequality Crisis in 16 Charts” (The Atlantic)

By now, it’s (finally) becoming well-recognized that the term “fiscal cliff” confuses more than it clarifies. The worst problem with it is that it presents the sharp fiscal contraction baked into current law for 2013 as a single monolith, when in fact it’s the result of a bunch of separable tax increases and spending cuts. Given that our previous effort at renaming the “cliff” clearly failed, I now officially nominate “à la carte austerity” as a new entry.

A second problem with the “cliff” metaphor is that it carries the strong implication that if this à la carte austerity is not solved by Jan. 1, then economic chaos will ensue. This is clearly wrong. If nothing is done to address the fiscal contraction throughout the entire first half of next year, then yes, the economy will re-enter recession. But we will not be slammed back into recession Jan. 2 if this isn’t solved by then. I should note one important caveat to this: fiscal austerity will be very “cliffy” indeed for about two million of the most vulnerable Americans, as extended unemployment benefits will see a hard cutoff by the end of December. So if policymakers are trying to manage this situation with maximum efficiency and compassion, it seems that extending the longer unemployment benefits is an obvious place to start, even if other elements of the à la carte austerity are not solved. Yes, I’m not holding my breath either. Read more

The American Immigration Council (AIC) has a new blog post that makes some troubling claims regarding certain aspects of the H-1B guest worker program. In her piece, “Lawsuit Uncovers USCIS’ Double Standards in H-1B Program,” AIC attorney Emily Creighton discusses what she believes to be the significance of a number of revealing internal documents AIC obtained from U.S. Citizenship and Immigration Services (USCIS) through a Freedom of Information Act (FOIA) request and subsequent litigation. I admire and applaud the lawyers at the AIC’s Legal Action Center for their hard work to force the release of the documents, because the action has brought another element of much-needed transparency to the flawed and much-abused H-1B guest worker program for temporary foreign workers with at least a college degree. However, the conclusions Creighton draws regarding AIC’s new discoveries are off the mark.

Creighton describes the substance of her findings:

According to fraud referral sheets [obtained from USCIS], a fraud investigation may be triggered when a business asks for an H-1B employee if the business has a combination of the following characteristics: 1) a gross annual income of less than $10 million, 2) fewer than 25 employees, or 3) has been in business for fewer than 10 years.

In her opinion, this means Read more

After years of hearing the Chamber of Commerce and certain other business groups complain about the regulatory burden government imposes, far too many Americans (and politicians) are probably convinced that regulations are excessively burdensome to businesses. Not so, according to two important new pieces of information.

First, after examining 185 nations on 10 key factors, the World Bank’s latest “Ease of Doing Business” study ranks the U.S. No. 4 overall and No. 1 among the 25 largest economies. In the words of the World Bank, “A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm.” Unlike so many business trade associations and lobbyists, the World Bank recognizes that the regulatory environment includes many rules that enhance and protect business activity, and the U.S. ranks especially high in protecting investors, enforcing contracts, and getting credit.

A second fact that contradicts business complaints about burdensome regulations is that corporate profits, which were $1.75 trillion in the third quarter of 2012, are at an all-time high (higher as a percent of GDP than at any time in our history). That corporate America’s bottom line is doing extraordinarily well should, at a minimum, make one skeptical of the seemingly endless studies by business groups which somehow find that regulations are damaging them.

That leads to the central question: Given that the U.S. has one of the most welcoming regulatory environments in the world, why aren’t U.S. businesses creating more jobs instead of hoarding the historic profits they’ve accumulated? The answer, as most economists know, is slack demand. Without customers able and willing to spend, businesses won’t invest. The solution is the same as it was at the start of the recession: because financially squeezed consumers can’t spend and businesses won’t, it is the responsibility of the federal government to make large enough investments in infrastructure and human capital to lift the economy and protect our future prosperity.

The Wall Street Journal’s owner and editors hate unions, so it is no surprise that the newspaper published an editorial on Tuesday gloating over Michigan’s enactment of “right-to-work” legislation to ban contracts between labor unions and employers that require all employees covered by the contract to pay union dues or their equivalent. The editorial is so full of untruths, half-truths and right-wing extremist ideology that a full response would wear out both author and reader. But let’s take a brief look at how the 1 percent defends this ugly attack on employee rights and economic security.

The heart of the editorial is the contention that right-to-work-for-less laws are good for workers, families and state economies, which it supports with various pseudo-scientific studies, including one by the Taxpayers Protection Alliance that—ludicrously—claims the typical Michigan family of four would have had annual income $54,224 greater in 2008 if Michigan had enacted a right-to-work-for-less law in 1977. In 2008, median income for a family of four was about $78,000, so the Journal is proposing that it would have been roughly $132,000! Curiously, only four states had median household income over $100,000 in 2008, and not one was right-to-work-for-less. Read more

Here’s some reading material for you from items EPI’s research team skimmed through today:

• “State Trends in Premiums and Deductibles, 2003–2011: Eroding Protection and Rising Costs Underscore Need for Action” (Commonwealth Fund)
• “Dems hold the middle ground. GOP is on fringe.” (The Plum Line)
• “Right to Work” Isn’t a Civil Right. But Unionizing Should Be” (New Republic)
• “Former Bank of England Official Criticizes British Policies” (Economix)
• “Sheldon Adelson: ‘I’m Basically a Social Liberal‘” (Washington Wire)
• “AIG WRAP-UP: Treasury Sells Final Shares of AIG Common Stock, Positive Return on Overall $182 Billion AIG Commitment Is Now $22.7 Billion” (Treasury Department)

Here’s some thought-provoking content that EPI’s research team enjoyed reading today:

• “The Real Long-Term Budget Challenge” (Economix)
• “The Conventional Wisdom Re Growth is Unwise” (Jared Bernstein)
• “It’s Official: Austerity Economics Doesn’t Work” (New Yorker)
• “What Does the New Community Reinvestment Act (CRA) Paper Tell Us?” (Rortybomb)
• “A failure of leadership: Snyder’s about-face on right-to-work betrays voters” (Detroit Free Press)