The Rag Blog

Environmental activist Diane Wilson — who will be Thorne Dreyer’s guest on Rag Radio this Friday, June 24 (go to article for details) — has become a champion who “takes risks, gets bloodied and arrested, and endures jail — then turns her adventures into good-hearted, epic tales reminiscent of Mark Twain.” Wilson, a shrimper from Seadrift, Texas — and the author of Diary of an Eco-Outlaw — has become an inspiring leader of the environmental protest movement and a prime nemesis of corporate polluters. Article originall distributed by OpEd News.

Peak Driving, Peak Cars

By Roger Baker / The Rag Blog / June 22, 2011

Tell the average U.S. car owner that total driving in the USA might have already peaked forever, and they are likely to think you’re crazy. That possibility goes against a lifetime of personal experience, living as we do in a country dependent on personal vehicles for work trips and various other vital functions.

It doesn’t seem possible that total driving could peak and decline in our lifetimes, especially given an ever increasing population. Cars and their social and economic implications might be said to be the primary basis for the prevailing U.S. lifestyle and culture.

We see evidence for a shift in driving behavior in many places. Indeed, evidence for a driving slowdown clearly predates the big 2008 run-up in fuel prices. There are a number of factors at work. https://www.theragblog.com/roger-baker-austin-drowning-in-traffic-growth-think-again/ . High unemployment cuts down on work trips. Intractable traffic congestion associated with suburban commuting in most US metropolitan areas plays a role. As the US population ages, it is driving less.

According to the best data, collected by hundreds of stations around the USA by the Federal Highway Administration, the total amount of US driving, called VMT or vehicle miles traveled, hit a peak of about 3.04 trillion miles of travel in 2007. Since 2007, travel volume has been making a sluggish recovery, but US driving is still over one percent below the level of four years ago. http://www.fhwa.dot.gov/ohim/tvtw/11aprtvt/figure1.cfm

Here is my expanded version, including the latest month available, the VMT for April 2011, and extends backward for each month since 2004. We can see there were several years of a weaker increase, beginning about mid-2005. As gas prices rose during 2008, total driving took a nosedive and then made a slow bumpy recovery during 2009-2010. In early 2011, driving has dropped again, likely in response to sharply higher fuel prices.
VMT2004-2011.png

The reason for this slow recovery in US driving recovery is not hard to understand. The most recent data show that the cost of transportation (mostly driving) in the US has been rising with increasing fuel prices. It has now recovered and exceeds the previous 2008 peak http://research.stlouisfed.org/fred2/series/CPITRNSL?cid=32418, even as household income continues to fall behind due to inflation.

If we are optimists, we can look at this chart and argue the VMT numbers might keep rising at the current sluggish rate. Purely by eyeballing the chart, it looks like US travel volume might possibly recover to reach its old 2007 peak in two years or so. The likelihood of higher oil prices and the slow replacement of the existing vehicle fleet suggest that this is unlikely to happen.

The US vehicle fleet of cars, light trucks, etc may already be past its peak http://www.houstontomorrow.org/livability/story/us-car-ownership-rate-may-be-at-its-peak/ . Total private vehicles reached a high of about 250 million in 2008.

An excellent analysis of the changing economics of US transportation has been provided by Worldwatch Institute founder Lester Brown. He points out that In 2009 alone, car ownership declined by about 4 million vehicles, http://www.grist.org/article/u.s.-car-fleet-shrinks-by-four-million-in-2009 or about 2%.

Future U.S. fleet size will be determined by the relationship between two trends: new car sales and cars scrapped. Cars scrapped exceeded new car sales in 2009 for the first time since World War II, shrinking the U.S. vehicle fleet from the all-time high of 250 million to 246 million. http://www.earthpolicy.org/index.php?/plan_b_updates/2010/update87t . It now appears that this new trend of scrappage exceeding sales could continue through at least 2020.

The basic case for peak driving and peak cars is that driving is becoming increasingly unaffordable for the steadily growing ranks of low income drivers, in a nation where vehicle ownership is highly correlated with income. Annual car ownership cost is now estimated at $9000. http://www.boston.com/cars/newsandreviews/overdrive/2011/04/average_car_ownership_nearly_9000_per_year.html

Meanwhile, many experts now believe that since we are very near or past peak global oil production https://www.theragblog.com/roger-baker-playing-peak-a-boo-with-the-earth/. Given a steadily growing demand for a shrinking global oil supply, the lack of practical alternatives is bound to make driving in the US steadily less affordable. This is doubly the case when rising fuel prices act like a tax that competes with, and depresses, consumer spending in other sectors of the economy.

Until the US economy recovers, it is hard to see how driving and car sales can recover. Assuming the US and global economy do recover, it is just as hard to imagine a scenario in which basic supply and demand will not raise the cost of fuel high enough to kill the economic recovery, much as we saw in 2008 when the price of oil reached $147 a barrel.

If we knew the state of the US economy a year from now, and an average driver’s fuel costs, we would be in a good position to predict the level of driving. Since the economy is unlikely to recover much the next year, in terms of the part of family income that can be devoted to driving, the wild card, the biggest source of economic uncertainty, is the cost of motor fuel next year and beyond.

The Road Lobby; why public planners hate the concept of peak driving

The reality of peak driving and peak cars on the road is guaranteed to be seen as unwelcome, and to be unpopular among planners. Planning for peak driving deeply disturbs the basis for the business as usual, an unpopularity it shares with measures to limit global warming. Peak driving is subversive of existing interests since so much existing investment and infrastructure is based on the status quo.

There are a constellation of powerful financial interests tied in one way or another to the automobile, all sharing in common an interest in the continuation and expansion of an car-centric and oil-addictive US suburban lifestyle. These interests include the car building industry, the road construction industry, the home products industry, and include the various suburban sprawl, home-building beneficiaries. Most transportation planners and their allies, ranging from Exxon, to Walmart, to General Motors, are inclined by the nature of their existing investments to favor roads and driving as the way to serve a profitable continuation of the prevailing pattern of suburban development.

It should come as no surprise that is an active road lobby with many branches dedicated to perpetuating the privately profitable aspects of driving. The road lobby has its own stable of activist driving promoters like Wendell Cox http://en.wikipedia.org/wiki/Wendell_Cox and Randal O’Toole, http://en.wikipedia.org/wiki/Randal_O%27Toole , both stridently pro-road and anti-transit. If there is a toll road lobby it is probably centered around Peter Samuel and Toll Roads News http://www.tollroadsnews.com/ .

The Texas Transportation Institution http://tti.tamu.edu/ is essentially the academic think tank of the Texas road lobby. It offers an academic fig leaf of respectability to the active promotion of roads and cars and driving as unchallenged core values and infrastructure funding assumptions. One of their current projects is to study, and prove the necessity for, a new tax on miles driven to replace or supplement the current fuel tax. The fact that the road lobby would be suggesting what is guaranteed to be such a highly unpopular kind of tax only underlines the deteriorating economics of driving.

The road lobby, in its more overtly and stridently political manifestation, often maintains that the ability to drive anywhere is a basic civil right under attack by transit advocates and urban planners inside government http://ti.org/antiplanner/ . At any rate, this outlook applies when the planners are not primarily trying to build more roads. Especially the roads that subsidize the suburban growth surrounding major US metropolitan areas, where most state and federal planners are still focusing their attention. The ultimate futility of subsidizing suburban sprawl development with more roads comes as no surprise. The case was already solidly made in 2004 in the classic peak oil documentary “The End of Suburbia” http://www.youtube.com/watch?v=Q3uvzcY2Xug

The degree to which supposedly near-universal car ownership is threatened by a relatively declining US household income is a factor that US transportation planners are especially reluctant to admit. The reality is that rising fuel prices and a stagnant economy are fundamentally changing the economics of transportation and forcing the growing ranks of the poor to give up their cars.

Next time: A deeper look at what is by now an overwhelming body of evidence that US driving behavior is fundamentally changing in response to our changing economy. The closer you look, the more apparent that a basic shift is really taking place. But what will the public transportation alternative look like by the time the public widely appreciates how much they really need it?

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. Read more articles by Roger Baker on The Rag Blog.]

The Rag Blog

By David P. Hamilton / The Rag Blog / June 22,2011

[This is the fourth in a series of dispatches from France by The Rag Blog‘s David P. Hamilton.]

Social security in France has a wider definition that includes health care, unemployment compensation, family support, disability, and other benefit programs. But in the U.S. social security is generally understood to refer to the federal old-age pension program that protects workers and covers family members against loss of income from the wage earner’s retirement.

There are basic differences between the retirement programs in France and the U.S. In essence, in France the system is more costly, more complicated, and provides more benefits, but employers and the wealthy pay a higher percentage of the costs.

There are, however, major similarities between the French and American retirement pension systems. Both are pay-as-you-go systems in which current receipts are used to pay current benefits. Also, both are under attack by rightists because of their projected future insolvency caused by changing demographics.

The ratio of active workers paying into the system relative to retirees receiving benefits is falling in both countries and will fall more quickly with the retirement of “baby-boomers.” In France, this “dependency ratio” is already much worse than the in the U.S. Indeed, the U.S. has the best dependency ratio among the G8 nations.

This problem is largely a distraction to focus the debate away from obvious solutions to what Nobel Laureate economist Paul Krugman describes as a “modest” long term shortfall. Krugman notes that “extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of GDP. That’s less than 3 percent of federal spending — less than we’re currently spending in Iraq.”

James Roosevelt, a former commissioner for retirement policy for the Social Security Administration, claims that the “crisis” is more a myth than a fact. Nobel Laureate economist Joseph Stiglitz agrees.

Both France and the U.S. have a pay-as-you-go system. Money taken in from payroll taxes is used to pay current retirees. In the U.S., there have been more receipts than payouts since 1983. Excess receipts go into the Social Security Trust Fund. There they are loaned to the U.S. general revenue fund to be used for other governmental expenses.

The U.S. Treasury general revenue fund currently owes the Social Security Trust Fund over $2.5 trillion. In 2009, FICA taxes and interest on the fund took in $120 billion more than it paid out, despite a serious shortfall in payroll tax receipts caused by the subprime mortgage crisis and high unemployment. By 2019, the general revenue fund will owe the Social Security Trust Fund $3.8 trillion.

Unfortunately, the U.S. government has made no provision to repay these “borrowed” surpluses. They have gone most prominently to finance militarism, such as the recently passed 2012 $690 billion “Defense” Department appropriation.

There are various proposals being floated to repay this debt and rectify the shortfall by raising receipts, reducing benefits, or privatizing the system. But there are several other options that don’t ever get discussed. For example, had the government not spent a trillion on imperialist wars in Iraq and Afghanistan and trillions more to otherwise feed the voracious needs of the military-industrial complex, it would have the money to repay the trust fund.

As Ron Paul has suggested, were we to close down most if not all of the over 800 military bases the US has outside its borders and end the numerous wars (all in Muslim countries) in which we are presently engaged, we would have the money to pay back the Social Security Trust Fund. In other words, we could cut the largest discretionary element in the federal budget, the military/intelligence/homeland security expenditures that are greater than the similar expenses of the rest of the world combined.

But most military spending functions as a transfer payment from the general population to the rich who own and profit from the military-industrial complex. Hence, social security solvency achieved by reduced militarism is out of the question.

Revoking the Bush/Obama tax cuts for the most wealthy would largely eliminate the federal deficit, allowing general revenues to be used to pay back the debt owed Social Security, money owed to those of more humble means. The Center on Budget and Policy Priorities wrote in 2010:

The 75-year Social Security shortfall is about the same size as the cost, over that period, of extending the… tax cuts for the richest 2 percent of Americans (those with incomes above $250,000 a year). Members of Congress cannot simultaneously claim that the tax cuts for people at the top are affordable while the Social Security shortfall constitutes a dire fiscal threat.

This approach is considered politically unviable despite broad popular support among the general population who don’t own a single member of Congress, a president or a team of lobbyists.

Another option would be to remove the cap on FICA taxes that is currently $106,800. That solution would raise taxes on the richest 6% of Americans and largely restore perpetual solvency in the social security system, providing 1.3 trillion dollars over the next 10 years according to the libertarian Cato Institute.

Although the Wall Street Journal editors believe that lifting the cap would be “one of the greatest tax increases of all time” and “so crazy it’s beyond belief,” this richest 6% have seen their inflation-adjusted income increase about 90% over the past 30 years while wages of the less wealthy have stagnated.

A 2005 Washington Post poll found that 81% of Americans would favor lifting the cap altogether and it has been endorsed by those radicals at the AARP, the largest seniors lobby in the U.S. The precedent for removing the cap is that in 1993 Congress removed the cap on the tax to support Medicare. The Social Security Administrations chief actuary stated that removing the cap, even if it included increased benefits for the wealthy paying more, would eliminate 93% of the projected shortfall over the next 75 years.

Unfortunately, elimination of the cap is a non-starter in a Congress owned by the economic elite who might then have to pay the same tax the rest of us pay.

Or the government might tax property income, now exempt from FICA taxes, the same way wages and salaries are taxed. The current rate of taxation on long term capital gains is 15%, while the top marginal tax rate on wages is 35%. Again, such a tax would fall almost exclusively on the very richest Americans, the capitalist class, who derive most of their income from property investments.

Hence, it is politically unrealistic and not considered a viable option.

A much less desirable approach would be to raise FICA taxes on everyone from the current 12.4% (half paid by employees and half by employers) to 14.4%, which would solve the future insolvency problem altogether. This could be done by raising just the employer’s contribution and leaving the employee contribution as it is now. This would still leave the employer contribution in the U.S.below what employers pay in France.

It is argued that such a move would stifle employment, but the latest figures (for April 2011) show the unemployment rate in France only 0.1% higher than the official rate in the US that is widely considered understated.

In addition, we could simply bar the U.S. government from borrowing funds from the Social Security Trust Funds that it has no capacity to repay. But this would mean the deficit problem would become immediate, rather than being delayed by borrowing from the trust fund.

None of these potential solutions are remotely acceptable to the 1% of the U.S. population, the economic elite, who own the U.S. government. Hence, these options are all outside the realm of possibility within the capitalist hegemony in the U.S.

The demographic squeeze used to justify the insolvency argument is based on several factors, primarily greater longevity, declining birth rates, higher unemployment among the youngest and oldest workers, and unemployed older workers taking early retirement.

In 2010, French president Sarkozy’s government, despite massive protests by the Left that brought millions into the streets, raised the early retirement age from 60 to 62 and full retirement from 65 to 67. These changes are not fully applicable until 2018. The U.S. system is in the process of a similar transition. In 2018, the retirement age necessary for a pension is projected to be the same in both countries.

This change in the French system is supposed to make their system fully solvent into the foreseeable future. Yet in the U.S., rightists continue to argue that the U.S. system, with the same age of retirement and lower benefits, will not be solvent in the future, despite the fact that the demographics show the France has a greater disparity between active workers and retirees. One might reasonably ask why what works for France isn’t working for the U.S., which has less of a problem.

It is also notable that the solution Sarkozy chose to shore up the French system was considered a relatively moderate one. Given very high levels of public opposition, cutting benefits or raising taxes were considered out of the question and he paid a heavy political price for the measures he took. His subsequent approval ratings set record lows for any president in the post-WWII history of France.

Like in the U.S., social security pensions in France have huge constituencies and massive popular support. When recently polled on how to resolve the “debt crisis” in the U.S., respondents rejected changes in Social Security and Medicare by 68% to 28%. In France, the margin of support for the pension system is even greater.

In France, there are five categories of old age pensions, three of them public and universal, two private but strictly regulated.

First, there is a minimum old age pension one may receive even if you have never been employed. It is means tested and to qualify you cannot earn more than roughly $11,000 annually (at an exchange rate of $1.40 equaling one euro). It is also available to those whose qualifying earnings under the state pension system would result in a pension less than this minimum one. It pays about $12,000 annually to an individual or $19,500 to a couple.

The second tier of the French systems has 26 compulsory schemes, based on occupational groups largely funded by contributions from both employees and employers. Although schemes are not run or financed directly by the government, they are regarded as public pensions, typically administered by boards composed of representatives of workers and employers, and have to conform to principles determined by the state.

The largest ‘general’ scheme covers all wage-earners in the private sector. This is a mandatory state pension program that aims to provide payments up to a maximum of 50% of the retiree’s highest earning years, with payouts limited to a maximum, of 35,000 euro/$50,000 annually. In contrast, the maximum annual payout under the U.S. Social Security system is only $28,392.

This French retirement program is funded by payroll taxes at a rate of 6.65% paid by employees and 8.3% paid by employers, collectively 1.55% more than is paid by workers and employers in FICA taxes in the U.S.

In comparison, social security taxes in the U.S. are currently 12.4% of wages up to $106,800 per year with employees and employers each paying half. Those making more pay nothing on what they earn above the income cap. Hence, the U.S. system is funded by a regressive tax with those making more than the cap paying at a lower rate than those making less than the cap.

In 2012, the employee contribution is set to be reduced to 4.2%, while the employee contribution stays at 6.2%, a peculiar step given the concerns over the U.S. “debt crisis” and the Social Security system’s long term solvency.

Third, there is a mandatory occupational pension program with separate categories for private sector workers, civil servants and managers/executives. Contributions vary depending on your category, with higher rates for the managers/executive category and lower rates for workers.

Non-managerial workers pay nothing into this fund on their first $50,000 in annual income and 7.7% on earnings above that level. Civil servants pay 1.5% below $50,000 and 4.76% above. Managers and executives pay corresponding rates of 3% and 8%. Their employers pay more: none for workers wages below $50,000 and 12.6% above, 3% and 9.26% for civil servants, and 3% and 12% for managers.

The goal of this program is to raise the retirement income to 70-80% of the beneficiary’s highest earning years. These programs are now considered solvent despite France’s higher old age dependency ratio and the fact that French retire roughly four years earlier than Americans and live two years longer.

In addition to these public pension programs, France has optional private pension programs, both collective and individual, much like those in the U.S. These are strictly regulated. It is unthinkable that you could loose such a pension if your former employer went out of business. Nobody in France could believe what happened to employees of Enron or imagine that the stock market could have an impact on the pension system.

Because of the adequacy of the public pensions, most people in France do not have private pensions and those who do are mainly at executive level. The UK based Pensions Policy Institute asserts that French pensioners receive 90% of their pre-retirement income from their various pension resources.

In comparing the old-age pension system with that in the U.S., we see a representative example of results of socialism in France. Employers, the wealthy, and managerial personnel pay higher rates and those rates increase with income. Hence, the French system is funded by a progressive tax with the lowest paid workers paying little or nothing to benefit from some components of the system.

In the U.S., FICA is regressive, the upper income brackets paying less or nothing if they derive their income from property. This reflects France’s recognition of the inherently exploitive nature of capitalism that results inevitably in greater economic inequality that the state must ameliorate in order to maintain the equality component of “liberty, equality, fraternity.”

In contrast, in the U.S., with a government of, by and for the richest 1%, individualism is glorified, the commons is denigrated, and principles of social solidarity ar deemed unworthy of serious consideration.

[David P. Hamilton has been a political activist in Austin since the late 1960s when he worked with SDS and wrote for The Rag, Austin’s underground newspaper. Read more articles by David P. Hamilton on The Rag Blog.]

The Rag Blog

By David P. Hamilton / The Rag Blog / June 22,2011

[This is the fourth in a series of dispatches from France by The Rag Blog‘s David P. Hamilton.]

Social security in France has a wider definition that includes health care, unemployment compensation, family support, disability, and other benefit programs. But in the U.S. social security is generally understood to refer to the federal old-age pension program that protects workers and covers family members against loss of income from the wage earner’s retirement.

There are basic differences between the retirement programs in France and the U.S. In essence, in France the system is more costly, more complicated, and provides more benefits, but employers and the wealthy pay a higher percentage of the costs.

There are, however, major similarities between the French and American retirement pension systems. Both are pay-as-you-go systems in which current receipts are used to pay current benefits. Also, both are under attack by rightists because of their projected future insolvency caused by changing demographics.

The ratio of active workers paying into the system relative to retirees receiving benefits is falling in both countries and will fall more quickly with the retirement of “baby-boomers.” In France, this “dependency ratio” is already much worse than the in the U.S. Indeed, the U.S. has the best dependency ratio among the G8 nations.

This problem is largely a distraction to focus the debate away from obvious solutions to what Nobel Laureate economist Paul Krugman describes as a “modest” long term shortfall. Krugman notes that “extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of GDP. That’s less than 3 percent of federal spending — less than we’re currently spending in Iraq.”

James Roosevelt, a former commissioner for retirement policy for the Social Security Administration, claims that the “crisis” is more a myth than a fact. Nobel Laureate economist Joseph Stiglitz agrees.

Both France and the U.S. have a pay-as-you-go system. Money taken in from payroll taxes is used to pay current retirees. In the U.S., there have been more receipts than payouts since 1983. Excess receipts go into the Social Security Trust Fund. There they are loaned to the U.S. general revenue fund to be used for other governmental expenses.

The U.S. Treasury general revenue fund currently owes the Social Security Trust Fund over $2.5 trillion. In 2009, FICA taxes and interest on the fund took in $120 billion more than it paid out, despite a serious shortfall in payroll tax receipts caused by the subprime mortgage crisis and high unemployment. By 2019, the general revenue fund will owe the Social Security Trust Fund $3.8 trillion.

Unfortunately, the U.S. government has made no provision to repay these “borrowed” surpluses. They have gone most prominently to finance militarism, such as the recently passed 2012 $690 billion “Defense” Department appropriation.

There are various proposals being floated to repay this debt and rectify the shortfall by raising receipts, reducing benefits, or privatizing the system. But there are several other options that don’t ever get discussed. For example, had the government not spent a trillion on imperialist wars in Iraq and Afghanistan and trillions more to otherwise feed the voracious needs of the military-industrial complex, it would have the money to repay the trust fund.

As Ron Paul has suggested, were we to close down most if not all of the over 800 military bases the US has outside its borders and end the numerous wars (all in Muslim countries) in which we are presently engaged, we would have the money to pay back the Social Security Trust Fund. In other words, we could cut the largest discretionary element in the federal budget, the military/intelligence/homeland security expenditures that are greater than the similar expenses of the rest of the world combined.

But most military spending functions as a transfer payment from the general population to the rich who own and profit from the military-industrial complex. Hence, social security solvency achieved by reduced militarism is out of the question.

Revoking the Bush/Obama tax cuts for the most wealthy would largely eliminate the federal deficit, allowing general revenues to be used to pay back the debt owed Social Security, money owed to those of more humble means. The Center on Budget and Policy Priorities wrote in 2010:

The 75-year Social Security shortfall is about the same size as the cost, over that period, of extending the… tax cuts for the richest 2 percent of Americans (those with incomes above $250,000 a year). Members of Congress cannot simultaneously claim that the tax cuts for people at the top are affordable while the Social Security shortfall constitutes a dire fiscal threat.

This approach is considered politically unviable despite broad popular support among the general population who don’t own a single member of Congress, a president or a team of lobbyists.

Another option would be to remove the cap on FICA taxes that is currently $106,800. That solution would raise taxes on the richest 6% of Americans and largely restore perpetual solvency in the social security system, providing 1.3 trillion dollars over the next 10 years according to the libertarian Cato Institute.

Although the Wall Street Journal editors believe that lifting the cap would be “one of the greatest tax increases of all time” and “so crazy it’s beyond belief,” this richest 6% have seen their inflation-adjusted income increase about 90% over the past 30 years while wages of the less wealthy have stagnated.

A 2005 Washington Post poll found that 81% of Americans would favor lifting the cap altogether and it has been endorsed by those radicals at the AARP, the largest seniors lobby in the U.S. The precedent for removing the cap is that in 1993 Congress removed the cap on the tax to support Medicare. The Social Security Administrations chief actuary stated that removing the cap, even if it included increased benefits for the wealthy paying more, would eliminate 93% of the projected shortfall over the next 75 years.

Unfortunately, elimination of the cap is a non-starter in a Congress owned by the economic elite who might then have to pay the same tax the rest of us pay.

Or the government might tax property income, now exempt from FICA taxes, the same way wages and salaries are taxed. The current rate of taxation on long term capital gains is 15%, while the top marginal tax rate on wages is 35%. Again, such a tax would fall almost exclusively on the very richest Americans, the capitalist class, who derive most of their income from property investments.

Hence, it is politically unrealistic and not considered a viable option.

A much less desirable approach would be to raise FICA taxes on everyone from the current 12.4% (half paid by employees and half by employers) to 14.4%, which would solve the future insolvency problem altogether. This could be done by raising just the employer’s contribution and leaving the employee contribution as it is now. This would still leave the employer contribution in the U.S.below what employers pay in France.

It is argued that such a move would stifle employment, but the latest figures (for April 2011) show the unemployment rate in France only 0.1% higher than the official rate in the US that is widely considered understated.

In addition, we could simply bar the U.S. government from borrowing funds from the Social Security Trust Funds that it has no capacity to repay. But this would mean the deficit problem would become immediate, rather than being delayed by borrowing from the trust fund.

None of these potential solutions are remotely acceptable to the 1% of the U.S. population, the economic elite, who own the U.S. government. Hence, these options are all outside the realm of possibility within the capitalist hegemony in the U.S.

The demographic squeeze used to justify the insolvency argument is based on several factors, primarily greater longevity, declining birth rates, higher unemployment among the youngest and oldest workers, and unemployed older workers taking early retirement.

In 2010, French president Sarkozy’s government, despite massive protests by the Left that brought millions into the streets, raised the early retirement age from 60 to 62 and full retirement from 65 to 67. These changes are not fully applicable until 2018. The U.S. system is in the process of a similar transition. In 2018, the retirement age necessary for a pension is projected to be the same in both countries.

This change in the French system is supposed to make their system fully solvent into the foreseeable future. Yet in the U.S., rightists continue to argue that the U.S. system, with the same age of retirement and lower benefits, will not be solvent in the future, despite the fact that the demographics show the France has a greater disparity between active workers and retirees. One might reasonably ask why what works for France isn’t working for the U.S., which has less of a problem.

It is also notable that the solution Sarkozy chose to shore up the French system was considered a relatively moderate one. Given very high levels of public opposition, cutting benefits or raising taxes were considered out of the question and he paid a heavy political price for the measures he took. His subsequent approval ratings set record lows for any president in the post-WWII history of France.

Like in the U.S., social security pensions in France have huge constituencies and massive popular support. When recently polled on how to resolve the “debt crisis” in the U.S., respondents rejected changes in Social Security and Medicare by 68% to 28%. In France, the margin of support for the pension system is even greater.

In France, there are five categories of old age pensions, three of them public and universal, two private but strictly regulated.

First, there is a minimum old age pension one may receive even if you have never been employed. It is means tested and to qualify you cannot earn more than roughly $11,000 annually (at an exchange rate of $1.40 equaling one euro). It is also available to those whose qualifying earnings under the state pension system would result in a pension less than this minimum one. It pays about $12,000 annually to an individual or $19,500 to a couple.

The second tier of the French systems has 26 compulsory schemes, based on occupational groups largely funded by contributions from both employees and employers. Although schemes are not run or financed directly by the government, they are regarded as public pensions, typically administered by boards composed of representatives of workers and employers, and have to conform to principles determined by the state.

The largest ‘general’ scheme covers all wage-earners in the private sector. This is a mandatory state pension program that aims to provide payments up to a maximum of 50% of the retiree’s highest earning years, with payouts limited to a maximum, of 35,000 euro/$50,000 annually. In contrast, the maximum annual payout under the U.S. Social Security system is only $28,392.

This French retirement program is funded by payroll taxes at a rate of 6.65% paid by employees and 8.3% paid by employers, collectively 1.55% more than is paid by workers and employers in FICA taxes in the U.S.

In comparison, social security taxes in the U.S. are currently 12.4% of wages up to $106,800 per year with employees and employers each paying half. Those making more pay nothing on what they earn above the income cap. Hence, the U.S. system is funded by a regressive tax with those making more than the cap paying at a lower rate than those making less than the cap.

In 2012, the employee contribution is set to be reduced to 4.2%, while the employee contribution stays at 6.2%, a peculiar step given the concerns over the U.S. “debt crisis” and the Social Security system’s long term solvency.

Third, there is a mandatory occupational pension program with separate categories for private sector workers, civil servants and managers/executives. Contributions vary depending on your category, with higher rates for the managers/executive category and lower rates for workers.

Non-managerial workers pay nothing into this fund on their first $50,000 in annual income and 7.7% on earnings above that level. Civil servants pay 1.5% below $50,000 and 4.76% above. Managers and executives pay corresponding rates of 3% and 8%. Their employers pay more: none for workers wages below $50,000 and 12.6% above, 3% and 9.26% for civil servants, and 3% and 12% for managers.

The goal of this program is to raise the retirement income to 70-80% of the beneficiary’s highest earning years. These programs are now considered solvent despite France’s higher old age dependency ratio and the fact that French retire roughly four years earlier than Americans and live two years longer.

In addition to these public pension programs, France has optional private pension programs, both collective and individual, much like those in the U.S. These are strictly regulated. It is unthinkable that you could loose such a pension if your former employer went out of business. Nobody in France could believe what happened to employees of Enron or imagine that the stock market could have an impact on the pension system.

Because of the adequacy of the public pensions, most people in France do not have private pensions and those who do are mainly at executive level. The UK based Pensions Policy Institute asserts that French pensioners receive 90% of their pre-retirement income from their various pension resources.

In comparing the old-age pension system with that in the U.S., we see a representative example of results of socialism in France. Employers, the wealthy, and managerial personnel pay higher rates and those rates increase with income. Hence, the French system is funded by a progressive tax with the lowest paid workers paying little or nothing to benefit from some components of the system.

In the U.S., FICA is regressive, the upper income brackets paying less or nothing if they derive their income from property. This reflects France’s recognition of the inherently exploitive nature of capitalism that results inevitably in greater economic inequality that the state must ameliorate in order to maintain the equality component of “liberty, equality, fraternity.”

In contrast, in the U.S., with a government of, by and for the richest 1%, individualism is glorified, the commons is denigrated, and principles of social solidarity ar deemed unworthy of serious consideration.

[David P. Hamilton has been a political activist in Austin since the late 1960s when he worked with SDS and wrote for The Rag, Austin’s underground newspaper. Read more articles by David P. Hamilton on The Rag Blog.]

The Rag Blog

Social security in France and the US.

By David P. Hamilton / The Rag Blog / June 22,2011

[This is the fourth in a series of dispatches from France by The Rag Blog‘s David P. Hamilton.]

Social security in France has a wider definition that includes health care, unemployment compensation, family support, disability, and other benefit programs. But in the U.S. social security is generally understood to refer to the federal old-age pension program that protects workers and covered family members against loss of income from the wage earner’s retirement.

There are basic differences between the retirement programs in France and the U.S. In essence, in France the system is more costly, more complicated, and provides more benefits, but employers and the wealthy pay a higher percentage of the costs.

There are, however, major similarities between the French and American retirement pension systems. Both are pay-as-you-go systems in which current receipts are used to pay current benefits. Also, both are under attack by rightists because of their projected future insolvency caused by changing demographics.

The ratio of active workers paying into the system relative to retirees receiving benefits is falling in both countries and will fall more quickly with the retirement of “baby-boomers.” In France, this “dependency ratio” is already much worse than the in the U.S. Indeed, the U.S. has the best dependency ratio among the G8 nations.

This problem is largely a distraction to focus the debate away from obvious solutions to what Nobel Laureate economist Paul Krugman describes as a “modest” long term shortfall. Krugman notes that “extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of GDP. That’s less than 3 percent of federal spending — less than we’re currently spending in Iraq.”

James Roosevelt, a former commissioner for retirement policy for the Social Security Administration, claims that the “crisis” is more a myth than a fact. Nobel Laureate economist Joseph Stiglitz agrees.

Both France and the U.S. have a pay-as-you-go system. Money taken in from payroll taxes is used to pay current retirees. In the U.S., there have been more receipts than payouts since 1983. Excess receipts go into the Social Security Trust Fund. There they are loaned to the U.S. general revenue fund to be used for other governmental expenses.

The U.S. Treasury general revenue fund currently owes the Social Security Trust Fund over $2.5 trillion. In 2009, FICA taxes and interest on the fund took in $120 billion more than it paid out, despite a serious shortfall in payroll tax receipts caused by the subprime mortgage crisis and high unemployment. By 2019, the general revenue fund will owe the Social Security Trust Fund $3.8 trillion.

Unfortunately, the U.S. government has made no provision to repay these “borrowed” surpluses. They have gone most prominently to finance militarism, such as the recently passed 2012 $690 billion “Defense” Department appropriation.

There are various proposals being floated to repay this debt and rectify the shortfall by raising receipts, reducing benefits, or privatizing the system. But there are several other options that don’t ever get discussed. For example, had the government not spent a trillion on imperialist wars in Iraq and Afghanistan and trillions more to otherwise feed the voracious needs of the military-industrial complex, it would have the money to repay the trust fund.

As Ron Paul has suggested, were we to close down most if not all of the over 800 military bases the US has outside its borders and end the numerous wars (all in Muslim countries) in which we are presently engaged, we would have the money to pay back the Social Security Trust Fund. In other words, we could cut the largest discretionary element in the federal budget, the military/intelligence/homeland security expenditures that are greater than the similar expenses of the rest of the world combined.

But most military spending functions as a transfer payment from the general population to the rich who own and profit from the military-industrial complex. Hence, social security solvency achieved by reduced militarism is out of the question.

Revoking the Bush/Obama tax cuts for the most wealthy would largely eliminate the federal deficit, allowing general revenues to be used to pay back the debt owed Social Security, money owed to those of more humble means. The Center on Budget and Policy Priorities wrote in 2010:

The 75-year Social Security shortfall is about the same size as the cost, over that period, of extending the… tax cuts for the richest 2 percent of Americans (those with incomes above $250,000 a year). Members of Congress cannot simultaneously claim that the tax cuts for people at the top are affordable while the Social Security shortfall constitutes a dire fiscal threat.

This approach is considered politically unviable despite broad popular support among the general population who don’t own a single member of Congress, a president, or a team of lobbyists.

Another option would be to remove the cap on FICA taxes that is currently $106,800. That solution would raise taxes on the richest 6% of Americans and largely restore perpetual solvency in the social security system, providing $1.3 trillion over the next 10 years according to the libertarian Cato Institute. Although the Wall Street Journal editors believe that lifting the cap would be “one of the greatest tax increases of all time” and “so crazy it’s beyond belief,” this richest 6% have seen their inflation-adjusted income increase about 90% over the past 30 years while wages of the less wealthy have stagnated.

A 2005 Washington Post poll found that 81% of Americans would favor lifting the cap altogether and it has been endorsed by those radicals at the AARP, the largest seniors lobby in the U.S. The precedent for removing the cap is that in 1993 Congress removed the cap on the tax to support Medicare.

The Social Security Administrations chief actuary stated that removing the cap, even if it included increased benefits for the wealthy paying more, would eliminate 93% of the projected shortfall over the next 75 years. Unfortunately, elimination of the cap is a non-starter in a Congress owned by the economic elite who might then have to pay the same tax the rest of us pay.

Or the government might tax property income, now exempt from FICA taxes, the same way wages and salaries are taxed. The current rate of taxation on long term capital gains is 15%, while the top marginal tax rate on wages is 35%. Again, such a tax would fall almost exclusively on the very richest Americans, the capitalist class, who derive most of their income from property investments. Hence, it is politically unrealistic and not considered a viable option.

A much less desirable approach would be to raise FICA taxes on everyone from the current 12.4% (half paid by employees and half by employers) to 14.4%, which would solve the future insolvency problem altogether. This could be done by raising just the employer’s contribution and leaving the employee contribution as it is now. This would still leave the employer contribution in the U.S. below what employers pay in France.

It is argued that such a move would stifle employment, but the latest figures (for April 2011) show the unemployment rate in France only 0.1% higher than the official rate in the U.S. that is widely considered understated.

In addition, we could simply bar the U.S. government from borrowing funds from the Social Security Trust Funds that it has no capacity to repay. But this would mean the deficit problem would become immediate, rather than being delayed by borrowing from the trust fund.

None of these potential solutions are remotely acceptable to the 1% of the U.S. population, the economic elite, who own the U.S .government. Hence, these options are all outside the realm of possibility within the capitalist hegemony in the U.S.

The demographic squeeze used to justify the insolvency argument is based on several factors, primarily greater longevity, declining birth rates, higher unemployment among the youngest and oldest workers, and unemployed older workers taking early retirement. In 2010, French president Sarkozy’s government, despite massive protests by the Left that brought millions into the streets, raised the early retirement age from 60 to 62 and full retirement from 65 to 67. These changes are not fully applicable until 2018.

The US system is in the process of a similar transition. In 2018, the retirement ages necessary for a pension is projected to be the same in both countries.

This change in the French system is supposed to make their system fully solvent into the foreseeable future. Yet in the U.S., rightists continue to argue that the U.S. system, with the same age of retirement and lower benefits, will not be solvent in the future, despite the fact that the demographics show that France has a greater disparity between active workers and retirees. One might reasonably ask why what works for France isn’t working for the U.S., which has less of a problem.

It is also notable that the solution Sarkozy chose to shore up the French system was considered a relatively moderate one. Given very high levels of public opposition, cutting benefits or raising taxes were considered out of the question and he paid a heavy political price for the measures he took. His subsequent approval ratings set record lows for any president in the post-WWII history of France.

Like in the U.S., social security pensions in France have huge constituencies and massive popular support. When recently polled on how to resolve the “debt crisis” in the U.S., respondents rejected changes in Social Security and Medicare by 68% to 28%. In France, the margin of support for the pension system is even greater.

In France, there are five categories of old age pensions, three of them public and universal, two private but strictly regulated. First, there is a minimum old age pension one may receive even if you have never been employed. It is means tested and to qualify you cannot earn more than roughly $11,000 annually (at an exchange rate of $1.40 equaling one euro).

It is also available to those whose qualifying earnings under the state pension system would result in a pension less than this minimum one. It pays about $12,000 annually to an individual or $19,500 to a couple.

The second tier of the French system has 26 compulsory schemes, based on occupational groups largely funded by contributions from both employees and employers. Although schemes are not run or financed directly by the government, they are regarded as public pensions, typically administered by boards composed of representatives of workers and employers, and have to conform to principles determined by the state.

The largest “general” scheme covers all wage earners in the private sector. This is a mandatory state pension program that aims to provide payments up to a maximum of 50% of the retiree’s highest earning years, with payouts limited to a maximum, of 35,000 euro/$50,000 annually.

In contrast, the maximum annual payout under the U.S. Social Security system is only $28,392. This French retirement program is funded by payroll taxes at a rate of 6.65% paid by employees and 8.3% paid by employers, collectively 1.55% more than is paid by workers and employers in FICA taxes in the U.S.

In comparison, social security taxes in the U.S. are currently 12.4% of wages up to $106,800 per year with employees and employers each paying half. Those making more pay nothing on what they earn above the income cap. Hence, the U.S. system is funded by a regressive tax with those making more than the cap paying at a lower rate than those making less than the cap.

In 2012, the employee contribution is set to be reduced to 4.2%, while the employee contribution stays at 6.2%, a peculiar step given the concerns over the U.S. “debt crisis” and the Social Security system’s long term solvency.

Third, there is a mandatory occupational pension program with separate categories for private sector workers, civil servants, and managers/executives. Contributions vary depending on your category, with higher rates for the managers/executive category and lower rates for workers.

Non-managerial workers pay nothing into this fund on their first $50,000 in annual income and 7.7% on earnings above that level. Civil servants pay 1.5% below $50,000 and 4.76% above. Managers and executives pay corresponding rates of 3% and 8%. Their employers pay more: none for workers’ wages below $50,000 and 12.6% above, 3% and 9.26% for civil servants, and 3% and 12% for managers.

The goal of this program is to raise the retirement income to 70-80% of the beneficiary’s highest earning years. These programs are now considered solvent despite France’s higher old age dependency ratio and the fact that French retire roughly four years earlier than Americans and live two years longer.

In addition to these public pension programs, France has optional private pension programs, both collective and individual, much like those in the U.S. These are strictly regulated. It is unthinkable that you could loose such a pension if your former employer went out of business. Nobody in France could believe what happened to employees of Enron or imagine that the stock market could have an impact on the pension system.

Because of the adequacy of the public pensions, most people in France do not have private pensions and those who do are mainly at executive level. The UK based Pensions Policy Institute asserts that French pensioners receive 90% of their pre-retirement income from their various pension resources.

In comparing the old-age pension system with that in the U.S, we see a representative example of results of socialism in France. Employers, the wealthy, and managerial personnel pay higher rates and those rates increase with income. Hence, the French system is funded by a progressive tax with the lowest paid workers paying little or nothing to benefit from some components of the system. In the U.S., FICA is regressive, the upper income brackets paying less or nothing if they derive their income from property.

This reflects France’s recognition of the inherently exploitive nature of capitalism that results inevitably in greater economic inequality that the state must ameliorate in order to maintain the equality component of “liberty, equality, fraternity.” In contrast, in the U.S., with a government of, by and for the richest 1%, individualism is glorified, the commons is denigrated, and principles of social solidarity are deemed unworthy of serious consideration.

[David P. Hamilton has been a political activist in Austin since the late 1960s when he worked with SDS and wrote for The Rag, Austin’s underground newspaper. Read more articles by David P. Hamilton on The Rag Blog.]

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