New Appropriations Chairs

As the 109th Congress gets settled on Capitol Hill this week, many Senate and House committee members have changed. Notably, both the Senate and House Approriations Committees will be chaired by new Congressmen. Thad Cochran (R-MS) is taking over as Chair of the Senate Appropriations Committee for Senator Ted Stevens (R-AK). Jerry Lewis (R-CA) was chosen by Republicans yesterday to chair the House Appropriations Committee. He is taking over for Representative Bill Young (R-FL). Lewis has said that one of his top priorities will be to get the annual spending bills passed "on time and under budget." Check out this article for more information. An immediate priority for these new chairmen will be to provide emergency supplemental funding to tsunami victims. It is expected right now that $350 million will be set aside for tsunami aid. The Committees may also soon be engaged in asking for increased emergency supplemental funding for operations in Iraq and Afghanistan. There is current speculation that Bush will ask for $80 billion to be appropriated in funding.

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Option 2 "Makes Sense" to Frist But Risks Cuts In Benefits

In 2001 Bush appointed a commission to look at social security, and this commission came up with three proposals. One of the proposals, called Option 2, is currently receiving a lot of attention on Capitol Hill, with Bill Frist recently stating that "[It's] on the table, and it makes sense to me." Option 2 would link future social security benefits to increases in inflation over a worker's lifetime, rather than wages. One of the major problems with this proposal is that in our economy wages rise faster than inflation. According to this Washington Post article, the new benefits formula would "stunt the growth of benefits, slowly at first but more quickly by the middle of the century." While the proposal would work towards solving the problem of social security's long term deficit, the program does not show signs of reaching the level of "crisis" that many in the government are claiming. In fact, as Krugman points out in a New York Times column, if these proposals are put in place it "will do nothing about the real fiscal threat and will instead dismantle Social Security, a program that is in much better financial shape than the rest of the federal government." These overhauls would also come with a stinging cost to future retirees. The average middle class worker retiring in 2022 would see a benefits cut of 9.9 percent, while in 2042 benefits would fall by more than a quarter. These cuts would be detrimental considering that over the past 60+ years the social security program has done more to stave off poverty than any other program. In a recently released report, the Center on Budget and Policy Priorites highlighted the fact that other policies embraced by this administration will end up costing the country a lot more than the social security shortfall in the future, particularly the cost of Bush's tax cuts and Medicare prescription drug benefits. The report can be found here.

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Nuts and Bolts of the Declining Dollar

Over the past two years the dollar has lost almost 23% against the euro. One year ago, at the beginning of 2004, $1.25 could buy one euro. A year later, a euro is worth $1.37, nearly 12 cents more. The dollar has declined mainly because private investors are, according to this Economist article, "less eager to finance America’s huge current-account deficit." The overall 2004 deficit was $413 billion, and in the third quarter of 2004 it reached a record of $165 billion, or 5.6 percent of GDP. A further decline in the dollar will most likely cause interest rates to soar in the United States. The administration needs to act to prevent this by reining in the trade and budget deficits. For more information on the dollar, check out The Federal Reserve, The Institute For International Economics, and this issue brief put out by the Economic Policy Institute.

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Senator Graham's Perspective On Social Security

Retiring Senator Bob Graham has a valid reason for being concerned about social security reform: One dollar out of every 14 dollars in benefits paid by the Social Security Administration goes to a resident of the state he has served for the past eighteen years -- Florida. In a recent article written by Senator Graham he outlines the necessity of a social security safety net, and discusses many of the problems that come with President Bush's ideas for reform, including added risk for people collecting benefits, the embellishment of the crisis facing the system, and the fact that "our grandchilden" could be paying for this overhaul further down the road. To read the article, titled "Save Social Security From the White House," click here.

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Manipulating Numbers

In the months leading up to the November elections, President Bush stated numerous times that if reelected, he would cut the budget deficit in half by 2009. This announcement came in a year that saw a record high deficit of 413 billion, not to mention continued tax cuts and an increasingly expensive war in Iraq. Many budget and economic analysts have speculated as to how Bush plans to cut the deficit in half, all while continuing to fight a war, pushing to make tax cuts permanent, and pursuing expensive social security reform. This excellent article in yesterday's New York Times discusses the fact that Bush's plan to cut the deficit in half may rely more upon the manipulation of numbers and less upon concrete, responsible fiscal policies.

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The President's Economic Summit

Last week, Bush convened a number of experts in Washington, D.C. for an Economic Summit to discuss budget and tax reform, social security, and the possibility of extending last term's tax cuts. A transcript of Bush's summit comments can be found here.

As an article in today's Washington Post points out, Bush may see significant opposition to some of his plans from Congress, academics, and economic experts and analysts. Many people have been recently vocal about some of the administration's proposed policy reforms. For example Alan S. Blinder, former Vice Chairman of the Federal Reserve and a Princeton economist, recently stated the following concerning Bush's social security policy: "Under these changes, Social Security would be neither social nor provide security. This would be a piece of a program to expose people to more and more risk…. There are millions of Americans who have no desire and no ability to gamble on the financial markets, and they shouldn't be pushed to."

The next few months should include a good deal of debate concerning issues such as tax and social security reform. To read more about the Economic Summit, click here.

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Will Privatization Increase SS Management Fees?

As Paul Krugman noted in the New York Times this morning, social security overhaul comes with a lot of risks. He points out other countries have dabbled in privatization and is baffled at the lack of understanding of their experiences. For example, in Chile's program, privatization has caused management fees to be as high as 20 precent, whereas in the United States currently, 99 percent of social security revenues go towards benefits. This is another pitfall of privitization that is not mentioned by the Bush administration. Krugman's column is worth a read.

Also, click here to read the latest Center on Budget and Policy Priorities report about price indexing and how Bush's reform proposal could significantly reduce benefits in the years to come.

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Everything You Want To Know About Social Security And More

The Social Security Network, which was first launched in 1997, serves as an important resource for information and research on the Social Security program and the debate about its future. This week they released "Twelve Reasons Why Privatizing Social Security Is A Bad Idea." The report highlights the fact that the creation of personal investment accounts will have drastic consequences on federal revenue reserves, future retirees, and the people who rely on social security benefits the most. The report also includes numerous links to other studies of social security policy.

For an additional analysis of the social security safety net and the implications of reform, check out this article from tompaine.com.

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The Social Security Debate, Continued

Today is the first day of President Bush's Economic Summit, which will address issues such as budget and tax reform, health care, and social security. Social security has been widely discussed recently, as this administration has made clear their intent on overhauling the program. According to this New York Times article, however, plans to reform social security may result in significant benefits cuts for retirees in the future due to many factors, including the size of transition costs. Bush recently stated that he was opposed to the idea of raising payroll taxes to offset transition costs.

Senator Lindsey Graham (R-SC), one of the original proponents of reform, very recently warned however that borrowing the entire sum of transition costs to reform the program would be irresponsible. Because of current budgetary constraints, Graham told Fox News Sunday he supports temporarily lifting the program's tax base, or pushing up the $87,900 cap on personal income subject to Social Security. He said, "I don't think you can make the tax cuts permanent, have alternative minimum tax relief, and borrow the entire transition cost--which is over $1 trillion, and have debts that we can sustain."

To read more about Graham and the social security debate, click here and here.

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Trade Gap Grows Significantly in October

Yesterday, the government reported that America's trade deficit widened in October at a record monthly rate. BNA news services reported, "A major contributor to the October deterioration in the deficit was the oil import bill, as the price of oil rose 11 percent to a record $41.79 a barrel from $37.62 in September."

The trade gap widened a total of 9 percent from September to October. The deficit in September was $50.9 billion, and the deficit in October was $55.5 billion. The total deficit tally for the first ten months of 2004 was $500.5 billion, which is a significant increase when compared with the deficit tally for all twelve months of 2003, which was $496.5 billion. As a New York Times editorial pointed out today, the United States "is now on track for a trade deficit of more than $60 billion next June."

The continuously high trade deficit is not good news for the return on our dollar. The dollar is currently down 55 percent against the euro, and 22 percent against the yen. To read more about the dollar and the implications of the trade gap, click here. To read about President Bush's latest comments on the current strength (or weakness) of the dollar, click here.

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