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WASHINGTON, DC - DECEMBER 07: Senate Majority Leader Harry Reid (D-NV) (C) holds a news conference about extending the payroll tax cut with Senate Majority Whip Richard Durbin (D-IL) (L) and U.S. Sen. Robert Casey (D-PA) at the U.S. Capitol December 7, 2011 in Washington, DC. Reid promised that the tax cut, which is set to expire at the end of the year, will be extended even if he has to keep the Senate in session through the holidays. (Photo by Chip Somodevilla/Getty Images)
The debate in Congress over the payroll tax-cut extension, which is going down the same route as...pretty much every other debate in Congress this session, has created a sort of political Bizarro World. The proposed legislation wouldn't just extend the payroll tax cut, it would also tackle other funding issues. But the payroll tax-cut is where the action is.
The concern, among a strange axis of conservative Republicans and liberal Democrats, is that extending the tax cut will threaten Social Security. Benefits outpaced revenues in 2010. But as this chart from the New York Times shows, that's not unprecedented — Social Security payments ran above revenues in the 1970s and '80s.
However, since the late 1980s, Social Security has been running a surplus, with the extra money invested in interest-earning Treasury bonds. That funds now stands at $2.6 trillion. The cost of the payroll tax cut? $105 billion.
So, you might have heard by now that the Congressional "Supercommittee," a bipartisan effort to overcome partisan gridlock, has succumbed to...partisan gridlock.
This is from USA Today:
Republicans refused to cross their ideological line against increasing taxes. Democrats refused to allow cuts in popular programs that serve the elderly and poor without a compensating growth of government income, especially from the wealthiest Americans.
No one really knew what the Supercommittee was doing, anyway, so the sham of its negotiations — which looked as if they would have high sham potential from the git-go — ended in #EPICFAIL shouldn't shock anyone. But the USA Today report is admirable for starkly stating the core difference between the two sides.
That said, it's easy to cast the Democrats as pro-tax, in the interest of being pro-poor and pro-old folks, while saying that the Republicans wouldn't raise taxes if the future of the, um...republic depended on it.
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The top of a form 1040 individual income tax return.
I'm generally a fan of NPR's Planet Money, but I'm a little perplexed by what one of its founders, Adam Davidson, has been writing since he took up residence at the New York Times Magazine.
This weekend, for example, he argued that the middle class needs to get over the idea that rich people and corporations should pay higher taxes. And while he runs the numbers quite well, the conclusion are, to say the least, troubling:
It serves the interest of both parties to argue about taxes on corporations and the wealthy because neither wants to discuss the alternative, which is where things get touchy. To solve our debt problems, we have to go to where the money is — the middle class. People who earn between $30,000 and $200,000 a year make a total of around $5 trillion and pay less than 10 percent of that in taxes (owing mostly to tax incentives and the fact that most families make less than $68,000, where larger tax rates begin). Increasing the middle-class tax burden an additional 8 percent, however, would actually have a bigger impact than taxing millionaires at 100 percent.
It's a tough but manageable financial math problem. And America's middle class is actually a lot luckier than its counterparts in Greece, Spain or Ireland, who will be paying higher taxes while their countries' economies shrink, or stagnate. Even the Fed's dark forecasts anticipate that the U.S. economy will return to healthy growth (about 3 percent annually) within a couple of years. Unless we hold on to the fantasy that the solutions to our problems lie in the bank accounts of rich people and corporations.
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Declining incomes plus frugal shoppers equals a whole new ball game for retailers.
Are we starting to see some kind of paradigm shift in the way people earn and spend? I'm far from sure, but in the last week and a half, I've seen a few signs that's something's afoot. Median household income has evidently declined since the end of the recession, while consumers have reduced their spending — and may not increase it any time soon.
Reuters Felix Salmon offers a quick summary of a some U.S. labor data data now being processed by Sentier Research. You can easily see what the really troubling thing is: "In dollar terms, median household income is now $49,909, down $3,609 — or 6.7% — in the two years since the recession ended. It was as high as $55,309 in December 2007, when the recession began."
This is why the "recovery" feels like anything but. Meanwhile, the Wall Street Journal took a look at the new frontier of frugality: