The White House is considering adopting a temporary Social Security tax cut on employers to stimulate the economy as part of the debt ceiling negotiations with the Republicans, according to a Bloomberg News article. If the Administration so much as puts another Social Security tax cut on the table, they will be throwing Social Security under the bus for uncertain -- indeed, unlikely -- economic gain.
It seems like déjà vu. Wasn't it just last year that progressives had to talk themselves blue in the face explaining the harm that a temporary payroll tax cut would do?
In case you hadn't heard, the Obama Administration already enacted a one-year 2 percent payroll tax cut on the employee side as part of the tax cut deal with Republicans in December 2010. The revenue that Social Security would have gotten from the missing 2 percent of taxable payroll is being replaced by a one-time transfer of $105.2 billion from the general fund. (Click here for more on how Social Security is funded.)
At the time, the payroll tax cut was criticized by progressives for endangering Social Security's finances and undermining the program's political underpinnings. A critique made by Nancy J. Altman, a nationally renowned Social Security expert and co-chair of the Strengthen Social Security Campaign, still offers the best explanation for why a payroll tax cut is disastrous. Her arguments remain just as true of a payroll tax cut for employers. Here it is in a nutshell (though Nancy's full critique is a must-read):
Gradually defunds Social Security. The payroll tax cut will almost undoubtedly outlast its one-year expiration date. As the debate over the Bush tax cuts illustrates, taxes are easy to cut, but hard to restore, whatever the expectations are when enacted. Maintaining the reduced payroll tax rate would require the general fund to continue to transfer a growing amount of revenue to the Social Security Trust Fund amid mounting pressure to cut spending from the general budget. Social Security would have to compete with all other domestic spending programs for its share of a rapidly diminishing pie. The result would be both a real financial crisis for Social Security, and a crisis of public confidence in the program's integrity.
Undermines the program. The payroll tax is fundamental to the American public's commitment to Social Security. It is less a tax than a dedicated down payment for an earned insurance benefit. The payroll tax represents a tangible feature of the promise that if workers pay into Social Security from their wages, they earn its benefits when they retire, become disabled, or experience the passing of a loved one. That is one reason why, at a time when anti-government skepticism is at an all-time-high, even Republicans and Tea Partiers strongly support Social Security and oppose benefit cuts. Diminishing the payroll tax risks undermining that robust commitment.
Is a poor source of stimulus. The payroll tax cut is far more expensive, less progressive and less stimulating for the economy than other stimulus options like renewing the Obama Administration's middle class Making Work Pay tax cut. (Click here for an analysis and chart comparing the two tax cuts.)
The damage of one payroll tax cut has already been incalculable. Expanding it to include employers -- in effect extending it -- will be even worse. Deficit hawks falsely claim that Social Security contributes to the deficit. Putting it on the hook to the general budget, even temporarily, gives truth to their charge. A one-year payroll tax cut for employees was one thing -- but two years running? At what point will the general fund turn off the spigot, turning Social Security's modest shortfall into an immediate financial crisis?
Precious political energy has, and will continue to be spent, preventing the current payroll tax cut from being extended. Republicans will no doubt depict it as a major tax increase, and exploit it for political gain as the 2012 election approaches. Doubling our efforts to include fighting the extension of an employer payroll tax cut, which will likely elicit the lobbying prowess of big business, is a bridge too far. It will suck major resources from the left, and aggravate the Democratic Party's base in the run-up to the 2012 election.
Perhaps most importantly, unlike the current payroll tax cut -- which was inefficient stimulus, but stimulus nonetheless -- an employer-side tax cut will do little, if anything for the economy. Employers are not the ones who are hurting; consumers and workers are. Corporations earned $1.68 trillion in profits at the end of 2010 -- and were sitting on over $1 trillion in cash. Hiring has yet to pick up because consumer demand remains extraordinarily low. Giving businesses more money to work with is not going to change that.
The position that the Obama Administration is in right now is not enviable. With a weak jobs report last month showing that the recovery is faltering, they know they need to do something. But Republicans are adamantly opposed to any policies to get the economy going other than high-end tax cuts.
If, as Jared Bernstein speculated on Charlie Rose recently, the White House is eying an employer payroll tax cut, because it is the only thing Republicans will accept to raise the debt ceiling, then the President should stop wasting his time with the GOP. The Republicans clearly want to have their cake and eat it too -- that is, destroy entitlements and reap the political gains to be had from a failing economy. They must be hoping to achieve parts of their extreme ideological goals under a Democratic President, and retake the White House in the following year to finish the job.
Instead, the President should take his case to the American people. The public may not like raising the debt ceiling in theory, but they certainly do not favor throwing Social Security under the bus for a budget problem it did not cause.
Follow Daniel Marans on Twitter: www.twitter.com/danielmarans
The Obama Administration has been working feverishly the last couple of years to reduce the value of the debt owed to the SS trust fund through extremely low interest rates, and incessant pressure on our trading partners in Europe and the Far East -- China in particular -- to revalue their currencies. Understandably, China has resisted this. They're not stupid. They don't want the debt owed them devalued (who would), and they don't want their goods overpriced. Europe is preoccupied with its own problems, thanks to the Wall Street thieves, who caused Iceland to go bankrupt, with Greece and Spain teetering on the edge. The Obama Administration has done nothing since they took over to rein in Wall Street -- not surprising, given the personnel in charge at the White House.
http://globalresearch.ca/index.php?context=va&aid=23612
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The President and dems are playing the hand that was dealt to them by the american electorate. The President has already said he will not under any conditions continue the Bush tax cuts. Other programs that are under the thumb of house republicans will be buffeted and reinstated if simply the house switches back.
If NY 26th is any indicator ( it is ) , then the issue is clear for all americans that are paying attention . Do NOT cut medicare or social security or any other social program. These short term adjustments are just that ...short term.
The bigger question is whether payroll taxes are a productive tax for the economy. That answer is NO. We tax what we don't want. Cigarette taxes are saving thousands of lives. I think we want payrolls. Actually we need more payroll money going to the people right now. So taxing it for employers or employees makes no sense. Ask any small businessman. And how about you Working Person, what would a 6% raise do for you right now?
It's also regressive. The wealthy hardly notice the $6,000 on their millions of dollars in bonus. But average Joe sure feels that hit.
If you want a dedicated revenue string than fine, create a special import tax on yachts or a national lottery (which also is regressive) or a 2% income tax on income over a million dollars. But stop buying into the whole fairy tale that cutting payroll taxes will kill Social Security. Social Security will die when the people no longer have the strength to demand it.
Everyone has known we should have done it long ago but public sentiment has always prevented it. Maybe now is the time.
Why does Obama have to compromise? Because of those who voted Republican or stayed away in 2010.
They said Obama was trashing Medicare and that the Republicans would create jobs.
The Republicans will do anything that helps their corporate campaign donors.
They need to be reminded that they are the People's public servants, not the corporations.
If I was POTUS, I'd tell them to go take a hike because we already know they won't refuse to raise the ceiling. Their fake vote last week and their pleading with the markets to ignore the vote gave them away.
Politics is 100% money and ego.
He was the largest recipient of BP contributions.
The pharmaceutical companies shifted the bulk of their contributions from the GOP to Dems once they started gaining momentum, and surprise surprise, PHrMA got a sweetheart deal in Obamacare.
He got almost a million dollars from Goldman Sachs, and now many of their former employees line his administration, including Timmy Tax-cheat Geithner, who was placed in charge of the Treasury.
G.E., who, owned MSNBC (Obama campaign headquarters) and who paid nothing in taxes got it's CEO appointed to Obama's economic "recovery" team.
No one should deny that GOP establishment is big money, but the corruption is in no way exclusive to the GOP.
Republican's held the entire nation hostage and forced me to defund social security...
If you want to keep social security solvent we must vote for congress people who will restore the employer payroll taxes so our seniors will be safe. Voet Democratic and tell the Republican's you don't approve of their tactics.
In two years Obama has done more harm to social programs than the Republicans have done in decades. WHAT IS IN HIS MIND? Getting re-elected just can't be on his agenda. Next elections I'm voting for a Republican. At least I'll get what I paid for - someone who will totally destroy America. I didn't get what I paid for with Obama.
These are "insurance programs". When you call it that, you see who wants what and why.
That's why they lie in the beltway and frame it as "entitlements".
Now, who's interested in insurance market share and who's donating to campaigns?
But let'd be honest...SS is just an attempt to redistribute wealth.
Since we are being honest, your comment "SÂS is just an attempt to redistribuÂte wealth" is a fallback comment used by ill-informed conservatives. You need to look past Rush, Beck, and BIllo. Learn to think for yourself.
Folks if you want to keep any program for the public good (education, health, retirement, environment, etc.) then find and support a third party. Otherwise it will all be gone in a generation or less.
If you contribute - you collect. I have paid into it since I was 17 - often I have worked two jobs. I am over 60 now and yes, I want my insurance stipend.
We do not have to tolerate these plans to do away with Medicare or Social Security..... seems as though people have forgotten that every single politician was elected by us, we sent them to Washington to work for us, not themselves. There are solutions to our problems, but they are hard and politicians always want to take the easy way out.....it is our responsibility to make sure politicians work for the citizens of this country and not for their corporate banks.
It is apparent that the only Americans who know how to fight and stand up for what's right, are dressed in camo and have been sent out of the country.........
If you want change, find and support a third party.
http://www.marketwatch.com/story/many-of-us-wont-be-able-to-retire-until-our-80s-2011-06-09
If this is true, why do we have a "Social Security" system? This scam is beyond broke, it is unworkable.
Social Security pays an averge check of just $1280/mo after a person has 12.6% of their income taken away to invest in their retirement. If this money were placed in a CD or US Savings bond, the individual would have over a million dollars saved when they were ready to retire.
What would you rather have when you turn 65 and ready to stop working? A check for $1280 every month for the rest of your life or a million dollars?
Not retiring has nothing to do with Social Security. It has a lot to do with the lack of good paying jobs and the devalued dollar. The lower the dollar falls in value the more it costs for everything.
Plus we have a gouging medical system that should be controlled.
They may be trying to pay off their home before they retire and debt, which is a good idea.
My husband and I have invested in the market. It crashed twice on us in the last ten years and looks like it is going to again.
There is no guarantee that the half the employer pays now will be given to you for the stock market. They are already starting to not match 401k money. They are required by law to match what you pay into Social Security.
If you have 200,000 in the market when you retire and that is your only source of income, you will be broke in 6 years or less.
The spouse can draw higher benefits, if the other dies. The chidren can draw benefits, if they are under 18. It goes a long way on retirement. If you have your home paid for and live a simple life you can get buy on Social Security.
Two years ago the Republicans were destroyed, viewed as responsible for nations woes, and an unknown half black junior senator with a Muslim last name and dubious voting record was swept into office promising to CHANGE things.
Well this guy has not fought for a single thing I can think of. Obama is weak and I don't even hear what he says anymore because it really doesn't mean anything.
Change NO, Challenge, No- It still feels like George Bush was in office.
Obama made democrats mad and they didn't vote.