August 30, 2010

6 Reasons Why the Economy is Going Down

6 Reasons Why the Economy is Going Down

August 20, 2010

Activist Post - ... The Wizards in Washington entreat us to pay no attention to the man behind the curtain, hoping to distract the American consumer from the mounting evidence that the so-called recovery in the U.S. of Oz is faltering. Rather than let the market liquidate malinvestment and mismanagement, government intervention to prop up failed companies, bankrupt states, busted banks, and toxic business models (like condo flipping) is only dissipating vast sums of borrowed money to no useful end.

The second dip in the U.S. economy is coming, if not upon us, and that will exacerbate the rest of the world’s problems. The evidence in favor of this is so abundant, no black swans need appear on the scene to drive the point home.

The next leg of this “W” shaped recession we’ve been warning about for some time is already baked in the cake. Here’s why:

Top Six Reasons Why the Economy Is Going Down

1. A “jobless recovery” in the U.S. is not a recovery. You can bail out the largest and most mismanaged companies and change the rules to allow banks to forgo reporting their mistakes, making national economic statistics look better. But that doesn’t change the reality that millions of people are out of work – since the crash, over six million more in the U.S. alone – and unable to find jobs.

2. Nor does it make it any less alarming that the rate of bank failures is well ahead of last year’s record (140), with 86 shuttered as of mid-June. Nor does it have the slightest effect on a myriad other harsh realities that politicians, as a group, are unable to face.

3. The EU’s massive rescue package has not, and will not, avert trouble in the eurozone. To the contrary, the situation continues to deteriorate, pressuring the euro ever lower and taking it to levels not seen since early 2006. In today’s global economy, what’s bad for Europe is bad for Asia and the U.S. Ominously, the Baltic Dry Index, a barometer of international trade that staged a feeble recovery following the 2008 crash, is falling sharply again. With all due disrespect for the man, Alan Greenspan considered this his “must watch” leading indicator, and it has proved a good predictor of where the global economy is headed. That would be south.

4. Just as Greece exposed the extent of Europe’s problems with the PIIGS (and they thought the “Mexican Swine Flu” was a problem!), California seems poised to upset the whole U.S. applecart if it doesn’t get bailed out. It would be hard to maintain the illusion of recovery if the most populous state in the U.S. – with a GDP greater than Russia – implodes into a black hole. Illinois, New Jersey, and at least 43 others are just behind, hat in hand.

5. From Obama’s attempted ban on drilling for oil in the Gulf of Mexico, to the new financial regulations Congress has passed, to America’s flirtation with socialized medicine, it is clear that the U.S. has entered a new era of Big Government. Big Government, Big Debt, Big Deficits, Big Military… and surely soon: Big Taxes. One does not have to be an anarcho-libertarian to see this as a Big Problem delivering huge, negative unintended consequences.

6. The real estate markets are still an unfolding disaster. May sales of new homes fell by 30% to a record low (seasonally adjusted 300,000 units vs. 800,000 “normal” sales) and dropped another 2.6% in June. Housing starts are down similarly, and previously more rosy stats have been revised downwards. A recent report from Florida tells us that 81% of all loans in the state are “underwater,” and that nearly 40% of all Florida borrowers owe more than 150% of the value of their homes – just another hay bale in the wind. And the commercial real estate debacle we have been warning of has yet to hit the fan.

I could go on, but I’m sure you get the point that what’s already visibly ahead is Trouble with a capital “T” – never mind the possible black swans that may soon arrive. That said, while the global economy doesn’t need any black swans to tip it over the edge, the fact is that there are plenty of them out there, circling lower like buzzards. The BP oil spill disaster was one -- a major disaster to those affected directly, but barely more than a hatchling black swan, on the global scale of things.

Full-grown black swans could range from no-holds-barred war in the Middle East, to a spectacularly stupid new regulation in the EU or U.S., to an exceptionally long and harsh winter. Events that would be unfortunate difficulties to a robust economy can be fatal blows to one as rickety as the world’s today.

Which will it be? I don’t know – I’m not a fortune-teller – but I don’t need to know. All I need to know is that they are out there, like sparks swirling around a powder keg – and this one has a lit fuse anyway ...

Timeline for the Euro Zone Debt Crisis

Timeline for the Euro Zone Debt Crisis

July 13, 2010

Reuters - Here is a timeline of events in the euro zone debt crisis:

July 13 - Moody's cuts Portugal's debt rating by two notches to A1 citing rising debt and weak growth prospects, and says the country may need more austerity measures in its 2011 budget.

July 8 - Greece's main private and public sector unions strike for 24 hours to protest against sweeping pension reform. Greek lawmakers vote in favour of the pension reform.

July 7 - Germany agrees on a four-year, 80 billion euro ($100 billion) austerity plan, committing the country to cutting its budget deficit and shoring up Chancellor Angela Merkel's centre-right coalition.
Europe lists 91 banks taking part in financial stress tests, which are expected to provide more detail about problematic assets, including bonds issued by peripheral euro zone countries and loan exposures to troubled pockets.
June 30 - A strike by Spanish underground rail workers causes more traffic chaos in Madrid as unions threaten further stoppages over austerity measures.

June 29 - About 10,000 people take part in marches across Athens during a nationwide strike against austerity measures.
Greece starts to debate overhaul of pensions to raise women's retirement age from 60 to match men at 65 and demand more years at work to qualify for a pension. Greece's debt reached 133 percent of GDP in 2010.
June 25 - The CGIL, Italy's biggest union with 6 million members, holds rallies in Rome, Milan and other cities to force the government to redraft a 25-billion-euro austerity package.

June 24 - The cost of protecting government debt against default in Greece hits a record high. It costs to 958,000 euros to insure 10 million euros-worth of government bonds.

June 22 - Spain's parliament ratifies labour reforms aimed at restoring economic growth by easing cost of hiring, firing.

June 17 - European leaders agree to publish details of "stress tests" showing the financial health of individual banks in July and to toughen budget rules to restore confidence.

June 16 - France announces a reform of its pension system raising the retirement age gradually to 62 in 2018 from 60.

June 15 - The ECB says it will apply a 5 percent extra charge to Greek government bonds used as collateral in lending operations following a downgrade.

June 14 - Moody's cuts Greece's credit rating four notches to Ba1 or junk status due to risks to an EU/IMF bailout package, highlighting persisting doubts in coming out of a debt crisis.

June 9 - Liberals win most votes in Dutch election but consensus on bringing public finances under control will be hard. Deficit set to reach 6.6 percent of GDP in 2010.

June 9 - Portuguese parliament approves latest austerity package. Treasury chief rules out drawing on the euro zone aid package, citing a successful bond sale and economic recovery in Q1.

June 8 - Spain's unions say 75 percent of public sector workers stay at home in a protest against austerity plans. Government says real number of strikers is far smaller.

June 7 - German Chancellor Angela Merkel's coalition agrees a package of budget cuts and taxes to bring Germany's deficit within EU limits by 2013 and set an example to Europe. The plan aims to deliver 80 billion euros of savings over three years.

May 28 - Fitch cuts Spain's credit rating in response to record household and corporate debt and mounting public debt.

May 27 - Spain's government wins parliamentary approval for its 15 billion euro austerity package by a single vote.

May 25 - Italy approves a 24 billion euro austerity package with the aim of cutting the deficit to 2.7 percent of GDP in 2012 from 5.3 percent in 2009.

May 18 - Germany announces a unilateral ban on "naked" short selling of shares in its top 10 financial institutions, euro zone government bonds and related credit default swaps.

May 13 - Portugal's prime minister and opposition leader draw up steps to slash the deficit, including public sector pay cuts. The deficit is due to fall to 4.6 percent in 2011 from 9.4 percent in 2009.

May 10 - Global policymakers install an emergency financial safety net for the euro zone worth 750 billion euros to calm financial markets and avert contagion from the Greek crisis. The package consists of 440 billion euros in guarantees from euro zone states, plus 60 billion euros in a European debt instrument. The IMF is to contribute 250 billion euros.

May 6 - Greek parliament approves austerity bill.

May 2 - Prime Minister George Papandreou says Greece has reached a deal with the EU and IMF opening the door to a bailout in return for extra savings of 30 billion euros over three years. Athens will get loans worth 110 billion euros in instalments conditional on reforms over three years in the first rescue of a member of the 16-nation euro zone.

April 27 - Standard & Poor's downgrades Greek government debt to junk status. The next day it downgrades Spain's debt because of poor growth prospects.

April 27 - S&P cuts Portugal's rating by two notches to A-minus, saying Portuguese finances were structurally weak and the economy uncompetitive.

April 23 - Greece's Papandreou asks for activation of EU/IMF aid.

April 22 - Eurostat says Greece's 2009 budget deficit was 13.6 percent of GDP, not the 12.7 percent it had reported.

April 11 - Euro zone finance ministers approve a 30 billion euro aid mechanism for Greece.

March 25 - Euro zone leaders and the IMF agree to create a joint financial safety net to help Greece.

March 5 - A package of public sector pay cuts and tax increases is passed in Greece to save an extra 4.8 billion euros. State-funded pensions are frozen.

Feb. 5 - Spain proposes raising the retirement age to 67 from 65, triggering a mass union protest.

Jan. 29 - Spain announces a plan to save 50 billion euros, including government spending cuts totalling 4 percent of GDP. Public sector pay is to be cut 4 percent.

Jan. 14, 2010 - Greece unveils a stability programme, saying it will aim to cut its deficit to 2.8 percent of GDP by 2012.

Dec. 22, 2009 - Moody's cuts Greek debt to A2 from A1 over soaring deficits, the third rating agency to downgrade Greece.

Dec. 16 - Standard & Poor's cuts Greece's rating by one notch, to BBB-plus from A-minus, saying its austerity programme is unlikely to produce a sustainable reduction in public debt.

Dec. 9 - In Ireland, a budget delivers savings of over 4 billion euros. Public service pension age rises to 66 from 65.

Dec 8 - Fitch Ratings cuts Greek debt to BBB+, the first time in 10 years it has been rated below investment grade.

Nov. 20 - A final budget draft shows Greece aims to cut the deficit to 8.7 percent of GDP in 2010.

Nov. 5 - Papandreou's new socialist government says Greece's 2009 budget deficit will be 12.7 percent of GDP, more than twice the previously published figure.

Government Dependency

Will the Pension Time Bomb Set Off a Crime Explosion?

August 11, 2010

Taipan Publishing Group - When state and local budgets fall short, services are cut. That means critical services like police and fire and transport... and with the pension crisis looming, the unkindest cuts of all still lay ahead.

Diane Cunningham of Colorado Springs, Colo., no longer has a flat-screen television. She decided to sell it... so she could buy a shotgun.

Colorado Springsshut off a third of its streetlights this past winter, The New York Times reports, in order to save $12 million on electricity. Shortly thereafter, a chain of events convinced Ms. Cunningham she needed to be armed.
"Her tires were slashed, she said. Her car was broken into. Strange men showed up on her porch. Her neighborhood had grown deserted at night..."
Meanwhile, in East St. Louis, Mo., Reverend Joseph Tracy is convinced guns are the problem. (Guns in the hands of criminals, that is.)
"It's open field day now," Tracy says. "The criminals are going to run wild."
That dire prediction came from a decision by city council members, as reported on, to reduce the ranks of the East St. Louis police force by 30%. Alvin Parks, the mayor of East St. Louis, says the city had no choice but to lay off 37 employees, including 19 police officers and 11 firefighters. There was simply not enough money to pay them, and attempts to negotiate with the police and fire unions came to naught.

Officer Michael Hubbard will reportedly be "the lone patrolman for East St. Louis' midnight shift" as a result of the cuts. One lone beat cop, to cover a crime and poverty-stricken region, at the most dangerous time of night. One.

Meanwhile, in Philadelphia, Pa., the "rolling brownout" policy imposed on city fire stations is being questioned in light of a child's death. When the call came to respond to a house fire in which a 12-year old autistic boy died, the nearest station was closed.

When the Money Runs Out

What do the above tales of woe have to do with public pensions? It's simple: Most states and municipalities have balanced budget laws. Unlike the federal government, they are not allowed to run deficits. And so, when the money runs out, services are cut. Budget areas critical to residential safety -- like police, fire and street lighting -- are not spared the axe.

And when the pension time bomb truly explodes, cash-strapped states and cities will find themselves even shorter on cash... with huge payout requirements they can't legally dodge... and the Hobson's choice of slashing services to the bone or going belly up.

As police and fire services are scaled back, some residents arm themselves against the night. Others simply pack up and leave. In Clayton County, a suburb of Atlanta, Ga., evidence of the downward spiral is clear. The county was forced to shut down its public transportation system earlier this year, the NYT reports, for lack of funds to support it. An estimated 8,400 riders were left stranded, two-thirds of them with no car for backup.

When the exodus from a cash-strapped city or county begins, it is typically those with the financial means to leave who hit the exits first. This reduces gross tax revenues, which hurts the budget situation even more.

And all this is happening as public pension recipients gear up for a fight...

The Right to Be Stimulated?

In Milwaukee, Wis., they are not fighting for reinstated police coverage or fully operational fire stations. They are fighting over erectile dysfunction pills.

"With the district in a financial crisis and hundreds of its members facing layoffs," the AP reports, "the Milwaukee teachers union is taking a peculiar stand: fighting to get its taxpayer-funded Viagra back."
The union says the little blue pills are necessary for "an exclusively gender-related condition." The school board retorts that Viagra, Cialis, Levitra and the like are of recreational use and not genuinely necessary.

The insanity of the Viagra fight is elevated (no pun intended) by the fact that Milwaukee educators are losing their jobs. The teachers' union is shortsighted enough to ignore the well-being of Wisconsin children and its own dues-paying members in pursuit of a Quixotic demand.

Sadly, the attitude in Milwaukee is reflective of what's ahead nationwide as underfunded pension budgets collide with reality. For years and years, pensions have been funded on the assumption of completely unrealistic annual returns.

By punching higher than realistic rates of return into their spreadsheets -- and getting useless financial consultants to rubber stamp the calculations -- states and local municipalities have gotten away with shortchanging the pot year after year. But now, as tens of millions of graying baby boomers reach the age where those pension promises come due, the size of the "hole" is becoming starkly apparent.

According to a study by the Pew Research Center released in February of this year, the fiscal gap between what states have promised and what they can actually pay is on the order of $1 trillion. And according to Northwestern University economist Joshua Rauh, the Pew figures could actually be far too conservative, with the true multiple at least three times that.

Public Versus Private

The animosity could truly get intense when private and public interests clash.

On one side of the divide there will be John Q. Taxpayer, fuming at the deep cuts in services and local tax hikes he has bitterly endured, and at the same time loudly wondering why he should have to pay for fat public pensions -- lush promises made in far richer times -- while he has no such safety cushion at all.

On the other side of the divide will be public servants -- the teachers, cops, firemen and the like whom we have come to regard as salt of the earth -- arguing that a deal is a deal, and that decades of honorable service to the community should not go shortchanged.

It will be a brutal clash, and likely one with no true winners.

Personal Implications

How all of this will affect you will depend on where you live -- keeping in mind the pension problem is also severe outside the United States. (Says the U.K. Telegraph: "The size of public sector pension liabilities [in Britain] has been estimated at £770bn by the Treasury and £1.18 trillion by actuaries Towers Watson," with inadequate funding compared to "an unstable Ponzi scheme.")

At minimum, you should probably lower your expectations for timely law enforcement help in the event of a crime. In urban areas, police response time could be noticeably extended as fewer cars patrol the streets. And in more rural areas, one might have no realistic hope of a police response at all... or at least, not until the next day.

At the very least, such realities argue for serious consideration of a firearm (if you do not already own one and know how to use it)...

In terms of investing realities, the pension "time bomb" is in some ways less like a bomb and more like a slow-moving glacier. As a fiscal issue, it is massive and chilling and 10 skyscrapers tall... and there is absolutely nothing anyone can do to stop it.

Before all is said and done, pension shortfalls could cause multiple U.S. states to fall into the fiscal black hole of de facto bankruptcy, without legal recourse to true bankruptcy. This is a recipe for utter mayhem, with financially aggrieved parties screaming at each other until they are beet red in the face.

It is also a recipe for eventual U.S. state bailouts by Uncle Sam -- which takes us to a whole new level of frightening, considering that Social Security, too, is poised to go into the red this year for the first time since 1983.

Dozen State-employee Pensions Slashed to Cut Costs

June 17, 2010

Sacramento Bee - In an effort to reduce the burden on their budgets, at least a dozen states have passed laws this year overhauling their retirement systems. Some have created less-generous pensions for newly hired workers. Others have increased the amount of money employees must pay into their pensions. Some have done both.

The trend is being driven by big budget deficits and the 2008 stock-market crash, which left many pension plans underfunded. Meanwhile, sympathy for public employees' pensions has waned as anxious voters in the private sector struggle with turbulent 401(k) plan results and frozen pensions.

Arizona, Mississippi and Virginia are among those that instituted lower retirement benefits for newly hired workers. Even union-friendly states like Michigan and Illinois, their budgets depleted by the recession, reduced pensions for new hires.
"You have an almost unprecedented revenue crisis for state governments and an almost unprecedented loss in investment value," said Ron Snell, a pension expert with the National Conference of State Legislatures. "A lot of these issues came together -- it has become a flood tide of action."
But the waters haven't yet reached California, where the two big public pension funds are looking to state government for more money -- and California Gov. Arnold Schwarzenegger's attempts to reduce retirement expenses are running into resistance.

The California Public Employees' Retirement System (CalPERS) was on the verge last month of billing the state an additional $600 million for the upcoming fiscal year, an 18 percent increase. At the last minute, the board postponed the decision, saying it wants to see if increases can be put off for another year to ease the strain on a state budget that's $19 billion in the red. But this week, the board decided to bill the state the additional amount.

The California State Teachers' Retirement System (CalSTRS) is at least a year away from raising rates. The teachers' fund, unlike CalPERS, needs the Legislature's approval to set contribution rates, and the fund doesn't plan to approach lawmakers until 2011.

CalPERS and CalSTRS officials say they need additional state and local government dollars to help them recover from the 2008 market crash, which cost them a combined $100 billion.

Despite the two funds' money problems, Schwarzenegger's plan for a two-tier pension system, with lower benefits for new hires, is making little headway in the Democratic-controlled Legislature.

A small union representing California state scientists has opened the door a crack to a two-tier system. But the largest unions remain opposed, including the powerful Local 1000 of the Service Employees International Union.
Regardless of what happens elsewhere, "we need to work on California based on California's numbers," said Jim Zamora, spokesman for Local 1000. "Every state and every jurisdiction is different."
The trends in other states "give a talking point to advocates of reform, but I don't think it's very persuasive to the union leaders (in California), at least not yet," said political analyst Jack Pitney of Claremont McKenna College.
The average CalPERS pension pays $25,212 a year. The average CalSTRS pension is significantly higher -- $34,668 -- but officials with the fund note that their members don't collect Social Security.

Private-sector pensions average $11,282 a year, according to the Employee Benefit Research Institute. Public employee unions say their relatively hefty pensions represent a fair trade-off because their members earn smaller salaries during their careers than their private-sector counterparts.

Still, public employee pensions around the country have come under scrutiny as state legislatures cope with sagging revenue and the fallout from the market crash.
"Certainly in the wake of the investment losses of 2008, a lot of plans took a look at their numbers and found that they needed to make some changes ... in order to preserve or restore the plans' sustainability," said Keith Brainard, research director at the National Association of State Retirement Administrators. "The level of attention being given to public employee compensation is heightened."
The issue reached a flash point in Illinois. The leading Wall Street debt-rating agencies were threatening to downgrade the state's credit rating because of Illinois' budget woes, including troubles in the pension funds. A downgrade would have jeopardized financing for billions of dollars' worth of public-works construction projects.

So lawmakers in April passed a series of pension changes. The law will reduce benefits for newly hired state and municipal employees -- and will force them to work longer before they can retire with full pensions. The plan will save billions.

Civil Servants Find Themselves Cast in Unlikely Role -- Fat Cats

Teachers, Cops and Firefighters Confront Growing Backlash Over Benefits

August 12, 2010

ABC News - Move over Wall Street traders -- seems there's a new vampire squid in town. Civil servants?

Passage Tuesday of a controversial bill sending billions of dollars to states to shore up payrolls for public school teachers further stoked the debate over whether government employees, their unions and their benefits packages are bankrupting the country.
"[The bill] will make the teachers unions happy, but it won't make teaching in schools better," said Rep. John Kline, R-Minn., at a press conference Tuesday during which he and other Republican leaders criticized legislation earmarking $26 billion in aid for school districts and other state agencies.
As the recession grinds on and states struggle to close budget gaps, a spotlight is shining on the salary and benefits collected by public sector professionals, including teachers, police officers and firefighters. They once commonly were viewed as the salt-of-the-earth backbone of America. But now, they are more often than not being portrayed as a boilerplate around taxpayers' necks.
"As a society, we meant well but we overpromised," said Carol Kellerman, president of the Citizens Budget Commission, a New York City nonprofit group that seeks to curb wasteful spending of taxpayer dollars. "These benefits to civil servants are no longer sustainable."
From cash-strapped California, where the public school teachers have been hammered as the highest-paid in the country, to Connecticut, where an assistant police chief in New Haven recently made headlines for retiring at age 48 with a six-figure annual pension, public workers, fairly or not, are increasingly the target of public scrutiny and scorn.
"We're in a difficult economic situation right now where a lot of people in the private sector are losing their jobs and benefits," said Jon Shure, deputy director of the State Fiscal Project at the Center on Budget and Policy Priorities. "Some political forces and commentators play off that fear and uncertainty to foster anger against those fortunate enough to still have economic security, saying, in effect, 'Look at these public sector workers leeching off your hard-earned dollars.'"
Civil Servant Benefits Blamed for Broke States

Shure, along with several advocates of public workers, pointed out several reasons why they say the growing negative perception surrounding public sector wages and benefits is unfounded:
  • Contrary to widely reported tales of outrageous pension abuse, the average annual pension collected by U.S. public servants is around $20,000, according to the CBPP and the American Federation of State, County and Municipal Employees (AFSCME).

  • Only one-fourth of the money used to fund most civil service pension funds, including firefighters and police, comes from taxpayers; the rest come from employee contributions and investment returns.

  • While state pension deficits are said to be in aggregate in excess of $1 trillion, the figure becomes far less staggering when put in the context of when the benefits are slated, on average, to be paid out -- over three decades, said Steven Kreisberg, AFSCME's director of collective bargaining. "Taken over 30 years, it's 2 percent of state budgets," he said.
"Trust me, teachers are hardly retiring with golden parachutes and living out their years floating on yachts," said John Abraham, director of benefits for the American Federation of Teachers.
According to Abraham, the average public school teacher earns $50,000 and retires on an annual pension of around $29,000. Roughly two-thirds of that comes from teacher contributions and investment returns, with the rest coming from tax dollars, he estimated.

Meanwhile, some 25 percent of all public teachers aren't even eligible for Social Security because of opt-out provisions certain states agreed to in the 1980s.
"These pension funds are one of the best ways we can keep good teachers for a long period of time," Abraham said. "For taxpayers, it's a bargain."
In Milwaukee, where public school teachers earn, on average, around $60,000, the states financial assistance bill passed Tuesday by Congress is being welcomed as a much needed lifeline, said Mike Langyel, president of the Milwaukee Teachers Education Association, the teachers' union.

Around 350 city teachers who were laid off earlier this year might be able to come back to work as a result of the bill, Langyel said.

Aid Could Restore Teaching Jobs

Lately, it seems Milwaukee teachers have generated far more headlines for demanding that their health care plan cover the cost of Viagra than for anything ever accomplished in the classroom.

Drawing further scrutiny, the Milwaukee teachers union was singled out in a Wall Street Journal editorial Wednesday lambasting the education stimulus. The Journal said the teachers union caused the layoffs by being unwilling to adjust their rich benefits.
"In Milwaukee, for example, nearly all of the ... teacher layoffs ... could have been avoided if the unions had agreed to change health plans that cost $23,000 per teacher per year" the Journal wrote. "They could have accepted a still-rich $17,000 plan. The unions chose the layoffs betting (correctly) that the Democrats in Washington would come to their rescue."
Langyel strongly disputed the assertion that the union banked on a bailout or opted for layoffs while refusing a reasonable concession.
"That's a complete distortion," he said, adding that there was never actually any formal collective bargaining offer to switch health plans.
Langyel insisted that the school board deliberately floated in the local Milwaukee media a misleading notion that teachers were demanding more expensive health coverage when a cheaper option was available.

In reality, there are two plans offered, one of them indeed more expensive. Older, higher-earning Milwaukee teachers, which make up the bulk of the faculty, tend to choose a more-expensive plan, albeit one with a higher out-of-pocket deductible, while newer, younger, healthier and lower-earning teachers tend to select the less-expensive plan, which carries a lower out-of-pocket deductible.
So even if all teachers were shifted to the less expensive plan with the lower deductible, "it would quickly become more expensive on a per person basis, because the older teachers would require more coverage," Langyel said.

"Since when is decent health care for hard working teachers something to apologize for?" he asked. "I worked as a high school math teacher for more than 30 years. What happened to respect for teachers? This is very disappointing to be painted this way."
A School District Gets Creative

At least one public school district appears determined to keep its fiscal house in order without any stimulus and without attracting taxpayer ire.

Faced with a budget gap of $2.5 million earlier this year, the Portage Public School District in southwestern Michigan offered some 500 teachers the option of a voluntary early retirement, which 56 teachers accepted, while asking the remaining teachers to work one extra hour per day, covering more classes, said Tom Vance, a spokesman for the school district.

One year earlier, Portage teachers agreed to a 2 percent pay cut.
"We try not to rely on any miracles coming out of Washington," Vance said. "Things have been so tough here in Michigan for so long, we've learned to get by our own. We've learned to be creative."

August 29, 2010

State and Local Governments Are Finding Ways to Scale Back Pension Promises

If You Think Your State is Broke Now, Just Wait Until the Public-Sector Pension Bomb Detonates!

At least 39 states have imposed cuts that hurt vulnerable residents ...The crisis in state budgets is not an accident, and it wasn't unforeseeable. If they had known the revenue flood wasn't a permanent fact of life, governors and legislators might have prepared for drought. Instead, like overstretched homeowners, they took on obligations they could meet only in the best-case scenario—which is not what has come to pass. Over the last decade, state budgets have expanded rapidly. We have had good times and bad times, including a recession in 2001, but according to the National Association of State Budget Officers, this will be the first year since 1983 that total state outlays have not increased. - A Hole They Dug for Themselves, Reason Magazine, July 30, 2009

Across the country, government workers’ pensions are protected by guarantees even stouter than those on pensions in the private sector. The legal promises, often backed up by union contracts, cover more than 15 million people. Years of supporting court interpretations have enshrined the view that once a public employee has earned a pension, no one can take it away. Even during New York City’s fiscal crisis 30 years ago, no existing pension promises were reduced. But now a number of state and local governments are quietly challenging those guarantees. Financially troubled San Diego is the highest-profile example, but a handful of states, cities and smaller government bodies have also found ways to scale back existing promises and even shrink some current payments. While still only scattered cases, these examples may be an early warning sign of what could be coming elsewhere. As local officials take stock of unexpectedly large obligations to retired public workers, some are starting to question whether service cuts, sales of government property, and politically acceptable tax increases can ever go far enough to bring things into balance. - Once Safe, Public Pensions Are Now Facing Cuts, The New York Times, November 6, 2006

August 27, 2010

Reason Magazine - Unless you've been pulling a Rip Van Winkle for the past few years, you know that your state is more busted than Larry Craig in an airport toilet. The only possible exception is the state of Denial, and it closed its borders to new arrivals sometime in late 2008.

One of the main drivers of this sorry state of affairs is the massive disparity between public-sector and private-sector compensation, especially when it comes to benefits such as pensions. Various studies have found anywhere between a 70 percent and a 34 percent differential in total compensation, with public-sector employees getting not just more pay and benefits but near-absolute job security and early retirement. Consider California:

A bipartisan bill...passed virtually without debate unleashed the odious “3 percent at 50” retirement plan in 1999. Under this plan, at age 50 many categories of public employees are eligible for 3 percent of their final year’s pay multiplied by the number of years they’ve worked. So if a police officer starts working at age 20, he can retire at 50 with 90 percent of his final salary until he dies, and then his spouse receives that money for the rest of her life. Even during the economic crisis, “3 percent at 50” and the forces behind it have only become more entrenched.

In the midst of California’s 2008–09 fiscal meltdown, with the impact of deluxe public pensions making daily headlines, the city of Fullerton nevertheless sought to retroactively increase the defined-benefit retirement plan for its city employees by a jaw-dropping 25 percent. What’s more, the Fullerton City Council negotiated the increase in closed session, outside public view.

More on that here.

Unfunded state pension liabilities run in the neighborhood of $1 trillion. To understand just how this sorry state of affairs came about, read this report from ALEC.

There is a solution to this mess, the same solution that has been adopted by the private sector over the past several decades: switching from defined-benefit retirement plans to 401(k)-style defined-contribution plans. In a state such as Ohio, which is facing a $8 billion budget deficit and where state and local employees earn about 34 percent more in total compensation than their private-sector counterparts, bringing public-sector compensation into line with the private sector would cut the state's deficit by about 28 percent.

The alternative? Well, there isn't really one, other than destroying your state's economy. The politics of cutting public compensation are never easy but they have also never been more critical.

Reason on pensions.

Video produced by Josh Swain.

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Pension Watch
That approaching wave of pension debt is a lot bigger than it looks. The purpose of this site is to provide an overview of the multiple pension crises that are about to drown America's taxpayers. Our primary focus is on California, but we also track other states, corporate pensions, social security and international trends.

Expect Large-scale Mobile NFC Deployments in the Next One to Two Years

Contactless Smart Card Demand to Surge in APAC

August 19, 2010

Contactless News - Demand for contactless smart cards in the Asia-Pacific (APAC) region is expected to take off in 2012, according to a new report from Frost & Sullivan. The research firm says completion of several key government-led projects will trigger the growth, including NFC, e-passports and mass transit.

According to the report, shipment of contactless smart cards to the region is expected to grow at a compound annual growth rate (CAGR) of 16.4% from 590 million in 2009 to 1.9 billion units by 2016, generating revenues of approximately $2 billion.
“The world is already prepared to roll out NFC commercial projects with a small number of commercial projects having already begun and more than 200 pilot projects already completed across the globe,” Reuben Fong, research director at Frost & Sullivan. “In Asia-Pacific, we can expect large-scale mobile NFC deployments in the next one to two years.”
According to Fong, these NFC deployments will generate public interest in contactless bank cards, further driving up demand.

Additionally, India, China, the Philippines, Indonesia and Vietnam are all set to implement e-passports within the next five years, and smart card-enabled mass transit projects are on the rise across APAC.

From ZDNet
August 19, 2010

Contactless smartcards are expected to be in greater demand in the Asia-Pacific region from 2012, following the completion of key government-led projects including near-field communication (NFC), e-passports and mass transit, according to a Frost & Sullivan report released Thursday.

Contactless smartcards unit shipment is expected to grow at a compound annual growth rate (CAGR) of 16.4 percent from 590 million in 2009 to 1.9 billion units by 2016. Worth US$775 million last year, this market is expected to generate revenues at just over US$2 billion by the end of 2016 at a CAGR of 13 percent.

The overall smartcards market, including contact and contactless cards, was worth US$1.9 billion in 2009, Frost & Sullivan said. Contactless cards accounted for 23 percent of the overall shipment in 2009, with this figure expected to reach 50 percent in 2016.
"The world is already prepared to roll out NFC commercial projects with a small number of commercial projects having already begun and more than 200 pilot projects already completed across the globe," Reuben Fong, research director at Frost & Sullivan. "In Asia-Pacific, we can expect large-scale mobile NFC deployments in the next one to two years."
Fong added that NFC on mobile devices will also prompt renewed interest in contactless bank credit and debit cards with security issues having been ironed out.

With the United States, European Union and over 80 countries adopting the e-passport system, the analyst expects demand for contactless cards and similar government identification (ID) applications in Asia to continue.

India, China, the Philippines, Indonesia and Vietnam are all slated to implement e-passports within the next five years, according to Frost & Sullivan. The demand will continue to surge as such passports are renewed every five to 10 years, the research firm added.

One of the earliest applications of smartcard technology was transportation such as mass transit, which has been the platform on which new form factors were introduced and brought about greater user convenience.

In fact, mass transit ticketing is the second biggest application for contactless cards--accounting for 28 percent of contactless card shipment in 2009--after government ID, and Foong believes uptake will continue with the rise of mass transit projects across Asia-Pacific.

Other forms of contactless card applications part from the standard plastic cards include minicards and USB devices--both of which are also available in contact form--tokens, wristbands and watches.

While some of these forms have been around for some time, they have yet to find commonplace purpose, Foong said.
"As with any new technology, it will take time to find a proper niche as well as a concerted effort among all stakeholders to bring about a competitive value proposition to end-users and gain market acceptance," he added.

Biometric ID and Immigration Reform

Datastrip Supplies Handheld Biometric to Techno Brain

August 20, 2010

Contactless News - Datastrip has announced it has partnered with Tanzania-based information technology company Techno Brain to sell the EasyVerify mobile solution in the African market. The Easy Verify’s comes installed with contactless smart card and fingerprint reading capabilities and the option to expand into face and iris recognition.

L-1 Introduces New Biometric Device

July 15, 2010

Third Factor - L-1 Identity Solutions has unveiled a new biometric device called the HIIDE 5. The HIIDE 5 is the next generation in their HIIDE device family which is a small and lightweight mobile option for enrolling or authenticating of one’s identity using biometrics in the field. Additionally, the new device is touted as a customizable option designed to be able to fit the needs of field operations in law enforcement homeland security, military operations and transportation security.

Some of the more notable changes from the previous HIIDE 4 model in the HIIDE 5 is that the iris, fingerprint and facial images U.S. Department of Defense templates are stored at one-tenth of the size of a standard image file allowing fro quicker transmitting of data. Other capabilities of the new device include built-in GPS, 802.11 wireless support, Bluetooth support, 3g and 4g support, WiFi support, Tactical Radio support and WiMax support

Military Using Biometrics to Categorize Afghans

August 16, 2010

Third Factor - U.S. soldiers stationed in Afghanistan are depending on various biometric devices and the enrollment of Afghani citizens into their databases to better tell civilians from militants and other criminals in the area, according to a CJTF-101 article.

Among the biometrics the soldiers collect are all fingerprints, a facial scan and iris scans of each eye.

Samples aren’t just being collected from the individual’s or detainees being enrolled, however, as the soldiers are entering fingerprint information from various devices found to be involved with militants and entering those into the databases so that anyone later entered matching the collected information can be connected to the crime.

Military officials have reported on how such systems make their day-to-day lives much easier while deployed and will continue to do so as they reach towards their goal of enrolling a total of 1.65 million Afghanis.

SIA Defends Biometrics from Alaskan Bill

August 12, 2010

Third Factor - The Security Industry Association (SIA), a member-based group that advocates on behalf of the security industry in the U.S., has publicly opposed a Bill in Alaska that restricts biometric technology in the state, according to a Security Info Watch article.

The bill, which was introduced by Alaskan State Senator Bill Wielechowski, both defines biometrics as fingerprints, headprints, voice, facial images, iris images and retinal images and, if passed, would require both informed and written consent from an individual prior to their biometric information being collected by any authority other than law enforcement or government authorities.

SIA’s letter that stated its opposition to the bill warned of unintended consequences that could leave places and businesses less secure especially where business to business transaction securing, banking security, access control and e-commerce were concerned. The SIA has successfully lobbied against other biometric technology limiting legislation in New Hampshire in early 2010.

August 12, 2010

The Security Industry Association has come out this week in opposition of an Alaska bill that would restrict the use of biometric technology.

According to the bill, which is sponsored by Alaska State Sen. Bill Wielechowski, a person must give "informed and written consent" before their biometric data could be obtained, excluding law enforcement and other state and federal authorities. The bill defines biometric data as fingerprints, handprints, voices, facial images, iris images, and retinal images.

In a statement, the SIA says the proposed legislation would adversely impact the use of biometrics for security purposes and noted in a letter to the bill’s sponsor that it would have "unintended negative consequences."
"Biometrics provide an effective measure against fraud and identity theft in applications as diverse as personal access to buildings/computers, banking security, business-to-business transactions and e-commerce," SIA CEO Richard Chace wrote in the letter.
Similar legislation was defeated earlier this year in New Hampshire following lobbying efforts by the SIA.

SMARTRAC Ramps Up e-Passport Inlay Production

August 11, 2010

Contactless News - SMARTRAC announced that production and shipment of its high security e-Passport inlays at its facility in Chanhassen, Minn. has surpassed the milestone of 1 million units in a single month.

In December 2009, production of RFID components from SMARTRAC’s Minnesota facility reached 500,000 inlays in one single month for the first time. Since then, the company has continuously expanded production capacity and workforce at the local subsidiary.

Deadlines, Risks and the Future of Electronic, Chip-based Biometric e-Passports

August 11, 2010

Contactless News - Barry Kefauver has more than 30 years of government experience and has been instrumental in the development of electronic passport programs. Kefauver served as the deputy assistant secretary of state for Passport Services at the U.S. Department of State. He has chaired many international fora, including the International Civil Aviation Organization (ICAO) Work Group on New Technologies and the main committee of the International Organization on Standardization (ISO) assisting ICAO in drafting the biometric passport guidelines.

Kefauver is principal at the consulting firm, Falls Hills Associates LLC. and has served as adjunct professor at the University of Mary Washington, teaching international business.

Kefauver was kind enough to answer a series of questions for re:ID readers on the latest with the electronic passport programs.

Q: What’s the state of e-passport issuance around the world?

First, I would like to clarify the ICAO “deadlines” that have been the subjects of some confusion. The first deadline is that which has just passed; that is, as of April 1, 2010, all countries must have begun to issue Machine Readable Passports (MRP). The second deadline, and clearly related to the first, is that all issued non-Machine Readable Passports must expire before November 24, 2015. Note that neither of these deadlines requires that biometric or e-passports must be issued at all. The deadlines are focused solely on machine readability on an international and globally interoperable basis.

With respect to the status of passport issuance at the time of this writing, there are approximately 81 countries that are issuing electronic, chip-based biometric e-passports that are in compliance with ICAO requirements.

I say approximately because this number and the others that I will cite are based on the best data available from all of the best sources, but subject to change on a daily basis, generally increasing the number of issuing authorities employing e-passport technologies. Also, there are several countries that characterize their passports as e-passports that are NOT in compliance with one or more ICAO specifications. These are not included in the 81 noted earlier. If and when these are brought into compliance, they will be counted as well. There are an additional 27 countries that indicate they intend to issue e-passports yet within 2010.

On the other side of the equation, there are approximately–note that word again, for the same reasons–20 countries that are not issuing machine-readable passports in compliance with ICAO standards. Several of these passports that are not in compliance can be brought into compliance relatively easily and the countries have been notified as to the discrepancies.

Therefore, hopefully by the time this is published, this number will be diminished. In addition, at least eight countries are moving toward machine-readable passport issuance still to occur in 2010. In sum, of all of the ICAO 190 member state contracting parties, approximately 170 are now issuing traditional machine-readable passports or e-passport issuance in accordance with ICAO standards.

Q: What was the risk that ICAO took on biometrics that paid off?

In the early days when the quest was colloquially called “Co-Existing Technologies,” the goal was primarily to link the bearer with the document in a way that would enhance the ability of the human inspection process through the use of machine-assisted identity confirmation.

Unknowns of many kinds, such as new technologies, contactless chips in a paper substrate, interoperability, the infancy of biometrics, untested public perception, political concerns, resource requirements, and others, swirled about as work was being carried out.

Very fundamental questions, some of which had never been asked, most of which had no clear answers, abounded. And of course, those questions that continued to arise as work went on, those that we didn’t even know existed until they raised their ugly heads, were the most vexing.

Interesting that we assumed that the most difficult areas of deployment would involve the application of biometrics, frankly the reason why the chip’s data carrying capability had been chosen in the first place. After all, we had the maturity and deployment experience of ISO/IEC 14443 that would serve as our turn-by-turn deployment GPS.

Wrong. In addition to having to rewrite 14443 to accommodate the travel document functionality, we also had to define de novo ways in which to test the chips for both performance as well as reliability and durability, encountering a number of new-science learnings regarding the behavior–and vulnerability–of radio frequency chip technology.

So the risks facing ICAO were of several differing types, each one complementing and feeding on the others. There were the kinds of risks that we knew about such as the untried and essentially untested field performance of biometrics on the kind of global scale that worldwide passport issuance required. And then there were the intangible perceived risks that began to become clearer and more daunting, the kinds associated with ways in which to insure privacy and data integrity, while capitalizing on the operational virtues of the contactless chip that had formed the basis for its selection in the first place.

The use of biometrics, especially the use of facial recognition as chosen by ICAO as THE globally interoperable technology, was viewed quite skeptically and by one observer I recall, characterizing biometrics as “the new snake oil.” Certainly the body of knowledge that had been assembled when ICAO was fully committed to biometrics was sparse. As well, it was the ICAO/travel document application that drove identity management initiatives and had substantial impact on the enhancement and improvements of biometrics as well as the attending enabling technologies.

These kinds of risks are often the companions of pioneering efforts in many efforts to effect change. However, this work was being carried out on a global and worldwide scale and demanded that international and multilateral cooperation drive each and every decision and direction, otherwise that all-critical global interoperability would be left to wave aimlessly in the breeze.

The stakes were very high and very visible. So the risks, known and unknown, were dealt with as they were encountered and they were addressed in ways of global collegiality, a sense of togetherness that has characterized the MRTD programs. While there is always room for improvement, I think the payoff has been in confronting these risks head on, addressing them as effectively as humanly possible and being strengthened by having done so; we now have the most secure passport the world has ever known...

Q: What’s the status of deploying inspection systems for e-passport around the world?

There is no question that the deployment of machine-readable passports and e-passport issuing programs has proceeded with somewhat greater speed and broader impact than the reading and inspection tools. This is to be expected and resembles the time lag that accompanied the initial wave of machine-readable passports and their inspection and reading... So, with the word “approximately” modifying each of these data, the following provides a snapshot of where things stand at the moment.
  • 16 countries are currently reading and “using” the biographical and biometric data stored on the chip

  • 53 countries are using biometrics in some form for border management purposes (primarily face and finger or a combination of those two, but a couple using iris)

  • All 81 countries that issue e-passports are, of course, capturing biometric data in those chips (36 facial image, 45 both face and fingerprint)

  • 16 countries currently participate in the ICAO Public Key Directory (PKD), the organization that handles the exchange of PKI certificates among countries.
The use of biometric and other related tools is increasing as these data reflect ...

Q: Any prediction on what ICAO may be looking for in its next e-passport request for information?

The ICAO Request For Information process has been functioning on a roughly three-year basis since 1995. The intent of the RFI has been to give governments an opportunity to formally engage in a dialogue with industry in terms of more clearly and systematically identifying longer term needs, directions and priorities...

August 28, 2010

9/11 Destroyed American Liberty, the Rule of Law and the U.S. Constitution

The Nazification of the United States

LaRouche supporter assaulted by Alaska State Fair Security

August 28, 2010

Paul Craig Roberts - Chuck Norris is no pinko-liberal-commie, and Human Events is a very conservative publication. The two have come together to produce one of the most important articles of our time, “Obama’s US Assassination Program.”

It seems only yesterday that Americans, or those interested in their civil liberties, were shocked that the Bush regime so flagrantly violated the FlSA law against spying on American citizens without a warrant. A federal judge serving on the FISA court even resigned in protest to the illegality of the spying.

Nothing was done about it. “National security” placed the president and executive branch above the law of the land. Civil libertarians worried that the US government was freeing its power from the constraints of law, but no one else seemed to care.

Encouraged by its success in breaking the law, the executive branch early this year announced that the Obama regime has given itself the right to murder Americans abroad if such Americans are considered a “threat.” “Threat” was not defined and, thus, a death sentence would be issued by a subjective decision of an unaccountable official.

There was hardly a peep out of the public or the media. Americans and the media were content for the government to summarily execute traitors and turncoats, and who better to identify traitors and turncoats than the government with all its spy programs.

The problem with this sort of thing is that once it starts, it doesn’t stop. As Norris reports citing Obama regime security officials, the next stage is to criminalize dissent and criticism of the government. The May 2010 National Security Strategy states:

“We are now moving beyond traditional distinctions between homeland and national security. . . . This includes a determination to prevent terrorist attacks against the American people by fully coordinating the actions that we take abroad with the actions and precautions that we take at home.”

Most Americans will respond that the “indispensable” US government would never confuse an American exercising First Amendment rights with a terrorist or an enemy of the state. But, in fact, governments always have. Even one of our Founding Fathers, John Adams and the Federalist Party, had their “Alien and Sedition Acts” which targeted the Republican press.

Few with power can brook opposition or criticism, especially when it is a simple matter for those with power to sweep away constraints upon their power in the name of “national security.” Deputy National Security Adviser John Brennan recently explained that more steps are being taken, because of the growing number of Americans who have been “captivated by extremist ideology or causes.” Notice that this phrasing goes beyond concern with Muslim terrorists.

In pursuit of hegemony over both the world and its own subjects, the US government is shutting down the First Amendment and turning criticism of the government into an act of “domestic extremism,” a capital crime punishable by execution, just as it was in Hitler’s Germany and Stalin’s Russia.

Initially German courts resisted Hitler’s illegal acts. Hitler got around the courts by creating a parallel court system, like the Bush regime did with its military tribunals. It won’t be long before a decision of the US Supreme Court will not mean anything. Any decision that goes against the regime will simply be ignored.

This is already happening in Canada, an American puppet state. Writing for the Future of Freedom Foundation, Andy Worthington documents the lawlessness of the US trial of Canadian Omar Khadr.

In January of this year, the Supreme Court of Canada ruled that the interrogation of Khadr constituted “state conduct that violates the principles of fundamental justice” and “offends the most basic Canadian standards about the treatment of detained youth suspects.”

According to the Toronto Star, the Court instructed the government to “shape a response that reconciled its foreign policy imperatives with its constitutional obligations to Khadr,” but the puppet prime minister of Canada, Stephen Harper, ignored the Court and permitted the US government to proceed with its lawless abuse of a Canadian citizen.

September 11 destroyed more than lives, World Trade Center buildings, and Americans’ sense of invulnerability. The event destroyed American liberty, the rule of law and the US Constitution.

Dr. Paul Craig Roberts is the father of Reaganomics and the former head of policy at the Department of Treasury. He is a columnist and was previously an editor for the Wall Street Journal. His latest book, “How the Economy Was Lost: The War of the Worlds,” details why America is disintegrating.

RFID, GPS Technology and Electronic Surveillance

Germany to Roll Out ID Cards with Embedded RFID

August 21, 2010

International Business Times - The production of the RFID chips, an integral element of the new generation of German identity cards, has started after the government gave a 10-year contract to the chipmaker NXP in the Netherlands. Citizens will receive the mandatory new ID cards from the first of November.

Various German authorities will be able to identify persons fast and reliable by scanning the RFID citizen card. These will be the police, customs and tax authorities and, of course, the local registration and passport granting authorities.

The new ID card will contain all personal data on the security chip that can be accessed over a wireless connection.

German companies like Infineon and the Dutch NXP, which operates a large scale development and manufacturing base in Hamburg, Germany are global leaders in making RFID security chips. The new electronic ID card, which will gradually replace the old mandatory German ID cards, is one of the largest scale roll-outs of RFID cards with extended official and identification functionality.

The card will also have extended functionality, including the ability to enable citizens to identify themselves in the internet by using the ID card with a reading device at home. After registering an online account bonded to the ID card, are able to do secure online shopping, downloading music and most importantly interact with government authorities online, for example.

Biometric passports in a number of countries are equipped with RFID chips, containing a digital picture and fingerprints, and have been around for nearly 5 years after the United States required such passports for any person entering the country.

There are some concerns that the use of RFID chips will pose a security or privacy risk, however.

Early versions of the electronic passports, using RFID chips with a protocol called "basic access control" (BAC), where successfully hacked by university researchers and security experts.

The German ID card is using the BAC protocol as well, but only for the basic data which is printed on the front of the card, the picture and the name. Other fields are protected by a stronger proprietary protocol.

Illegal access to the stored data would be useful to create perfectly forged passports and for criminals to use hijacked identities for supposedly secure transactions online.

The responsible German ministry, however, cites the many advantages of employing a RFID chip, such as a longer card lifetime, the option to connect them to other future devices like RFID-reading mobile phones, and saving cost by being compatible with the existing infrastructure for the RFID passports.

Government Takeover of Retirement Assets

How Social Security Cheats You to Pay the Rich

Workers earning minimum wage pay their full share, while those who pull down a few hundred grand pay much, much less. How about a tax break for real people?

Originally Published in 2004

MSN Money - What would you think of a tax system that took money from the poor to give to the rich?

That's essentially whats happening with our Social Security and Medicare tax system, where low-income workers are dunned to pay benefits for high-income seniors.

Before the AARP strings me up for heresy, I'll quickly add that lots of folks paying into the system are better off than lots of folks who get money out of it. In fact, two-thirds of seniors rely on Social Security for more than half their income, and four out of 10 say it comprises more than 80%.

I'm also not saying there's anything wrong with drawing a Social Security check. You paid into the system, and you're getting what you were promised.

But that doesn't change the fact that some guy making minimum wage with no health insurance has to pay 7.65% of every dollar he earns, while some seniors worth millions get checks and discounted health care. That's Robin Hood in reverse.

The rich really do get a deal on Social Security

This is a reality that gets far too little attention, particularly when Congress is busy adding to the problem with a Medicare prescription drug benefit.

I'll make my biases clear: I work for a living, so I pay Social Security and Medicare taxes. But I'm one of the lucky ones, in that my annual income is above $87,900. That's the cutoff for having to pay Social Security taxes in 2004. [Update: In 2010, the Social Security wage base is $106,800 and the Social Security tax rate is 6.20% paid by the employee and 6.20% paid by the employer.] (I still have to pay Medicare taxes above that amount, since that particular tax has no income limit.) Roughly 20% of households report incomes above that threshold, according to the Census Bureau. The total income of that 20% of families represents half of all U.S. income.

So the proportion of my income that goes to Social Security and Medicare taxes is actually smaller than what most of America pays.

The Social Security outlay for folks like me and Michael Eisner, the chairman of the Walt Disney Co., is capped at $5,449.80 this year. (He makes a wee bit more than I do, so well use him as an example.) This maximum contribution is about half of 1% of Eisner's $1 million base salary. Eisner's Medicare taxes would be $14,500 -- the same 1.45% of salary as every other worker pays. All told, his bill would be about 2% of that base paycheck.

Meanwhile, the average working stiff must give up 6.2% of each dollar earned to Social Security and 1.45% to Medicare, for that 7.65% total.

No Social Security tax cuts

What's more, when income tax rates are cut, Mike and I really benefit. (Mike a bit more so than me, but I wont begrudge him.)

Social Security and Medicare tax rates, by contrast, have never been trimmed. Since the first payroll tax was collected in 1937, the rates have gone just one way: up.

Social Security and Medicare tax rates since 1937
1990 and later7.65%
*Medicare taxes were first collected in 1966.
Source: Social Security Administration

Not only haven't there been any tax cuts, but there aren't any credits, exemptions, deductions or fancy tax shelters to help that guy making minimum wage shield any of his income from payroll taxes.

And as he'll probably tell you, our minimum-wage worker has no assurance he'll get anything back for the money he's putting in. The systems hurtling toward bankruptcy, after all.

The Medicare drug benefit is, well, bizarre

So, Congress just had to go and make matters worse by adding a drug benefit to Medicare.

The idea was good -- let's make sure seniors can afford the drugs they need. But the result was bizarre, to say the least.

If you haven't already seen it, it's a doozy. First, it doesn't become available until 2006. Then, here's how its supposed to work:

How the Medicare drug benefit works
Amount Benefit
First $250 in prescription drug costsNo benefit
Prescription costs between $250 and $2,250Medicare pays 75%
Prescription costs between $2,250 and $3,600No benefit*
Prescription costs above $3,600Medicare pays 95%
*This is the infamous donut hole.
Source: Social Security Administration

Now, does that make sense to you? Does it make sense to anybody?

The only reason to structure the benefit like that was to ensure that as many seniors as possible got a piece of the pie -- whether they needed the helping or not -- while still making the initial cost of the program halfway palatable.

And the real costs were off by a third

If the goal were to get benefits to the most cash-strapped seniors, the plan would have been means-tested. (That is, as your income increases, the benefit decreases.) If the goal were to prevent catastrophic drug bills from bankrupting older Americans, the deductible could have been higher, and there wouldn't be that ludicrous donut hole in the middle.

Reducing the package to cover just those who need the help, though, wouldn't have flown politically.

Meanwhile, we learn that the cost of this added benefit won't be a mere $395 billion over the next decade. The White House now says those guesstimates were off by one-third. The real costs now will be $534 billion.

I argued in The Tax Cut Taxpayers Need Most that working families really need a break from Social Security and Medicare taxes. We could give them one by exempting the first $10,000 of income from payroll taxes -- saving each worker $765 a year -- or by reducing the payroll tax rate by a point or two. We could swing such a break only if we get serious about Social Security reforms.

But, as the prescription drug benefit shows, there's no political will to do so. The only steps Congress seems to be able to make are giant ones in the wrong direction.

Which means, for the folks paying into the system, that there's no relief in sight.

39 States Have Imposed Cuts That Hurt Vulnerable Residents

A Hole They Dug for Themselves

The crisis in state budgets is not an accident, and it wasn't unforeseeable.

July 30, 2009

Reason Magazine - Everywhere you look, states are being crunched by fiscal emergencies that range from painful to excruciating. California, which has been paying bills with IOUs, is now preparing to close state parks and furlough state employees—which is what you have to do when your budget deficit is bigger than the entire budget of some states.

It's not alone.
"At least 39 states have imposed cuts that hurt vulnerable residents," trumpeted a recent report from the liberal Center on Budget and Policy Priorities. California, New York, and Delaware have approved income-tax increases, and Pennsylvania and Illinois are considering doing likewise.
We all know the reason for the squeeze: An unexpected, severe national recession has dried up revenues just when states need funds to help out-of-work citizens. That's true: You would expect the worst downturn in decades to have a negative effect on tax collections. But it's a long way from the whole truth.

The crisis in state budgets is not an accident, and it wasn't unforeseeable. For years, most states have spent like there's no tomorrow, and now tomorrow is here. They bring to mind the lament of Mickey Mantle, who said, "If I knew I was going to live this long, I'd have taken better care of myself."

If they had known the revenue flood wasn't a permanent fact of life, governors and legislators might have prepared for drought. Instead, like overstretched homeowners, they took on obligations they could meet only in the best-case scenario—which is not what has come to pass.

Over the last decade, state budgets have expanded rapidly. We have had good times and bad times, including a recession in 2001, but according to the National Association of State Budget Officers, this will be the first year since 1983 that total state outlays have not increased.

The days of wine and roses have been affordable due to a cascade of tax revenue. In state after state, the government's take has ballooned. Overall, the average person's state tax burden has risen by 42 percent since 1999—nearly 50 percent beyond what the state would have needed just to keep spending constant, with allowances for inflation.

Even low-tax states like Texas and Nevada have followed the same course. No one has been inclined to say, "Taxpayers don't need to send us more money. We've got plenty."

All that growth should have been enough to pay for essential programs and furnish ample reserves, allowing state governments to weather a downturn without major adjustments. But the states put a priority on burning through all the cash they could get. Last year, they spent about 77 percent more than they did 10 years before.

California illustrates the problem. Adam Summers of the libertarian Reason Foundation in Los Angeles has calculated that:
If it "had simply limited its spending increases to the 4.38 percent average annual increase in the state's consumer price index and population growth each years since fiscal year 1990-91, the state would be sitting on a $15 billion budget surplus right now."
Illinois is another problem child. The state's general fund appropriation is some two-thirds higher today than it would be if the state had just kept those outlays in line with inflation over the last two decades. That increase, as in California, is the difference between a gaping deficit and a comfortable surplus.

Then there is New York. Last fall, Democratic Gov. David Paterson called for an end to the "unsustainable growth in state spending" in recent years. Since the mid-90s, he noted, the state budget has doubled, outstripping the inflation rate by nearly twofold. And New York was not exactly notorious for its frugality 15 years ago.

Unlike the federal government, states can't simply run deficits indefinitely. For that reason, they have a powerful duty to pile up surpluses during fat years, which would allow them to make up the revenue that goes missing during lean years. But for many lawmakers, the future extends only to the next election. So any money they have, they feel an insatiable need to lavish on someone.

Politicians are happy to blame the recession for depriving citizens of programs they have come to expect. The recession didn't create the gap between state government commitments and state government resources. It only exposed it.