You know what they always say: Pay now or pay later. Middle-class Americans may pay very dearly for the president's tax deal, and at the stage of life when they can least afford it. By providing a temporary cut in the payroll taxes that fund Social Security, this deal starts the nation down a slippery slope that could lead to permanent benefits cuts for the middle class and even more wealth for the rich.
In other words, Obama's "payroll tax holiday" could send the financial safety of America's seniors on a permanent vacation.
The embattled president lashed out at his critics at today's press conference. (Well, not all his critics. Just the ones in his own party. That seems to be the pattern lately.) He sneered at those who, he said, just want to "be able to feel good about ourselves and sanctimonious about how pure our intentions are."
"Purity" is a strange word for opinions that are strongly held by seven out of ten Americans, including most Republicans, independents, and even Tea Partiers. They're against cutting Social Security, and would rather raise taxes on the wealthy instead. This deal moves in the opposite direction by keeping taxes down for the rich and strengthening the hand of those who want to cut Social Security. The president's track record on this issue isn't reassuring, either. While he's attacked GOP privatization schemes, he has also carefully phrased his "defenses" of Social Security with qualifiers like the one about "protecting Social Security as a reliable income source" (a statement which avoids addressing benefit levels.)
It was Barack Obama who promoted an off-balance set of priorities that made deficits the center of attention, at a time when the official unemployment rate is 9.8% (and the unofficial rate is much higher). It was Barack Obama who formed a deficit commission and then gave it explicit authority to address Social Security (which doesn't affect the deficit). And it was Barack Obama who appointed two longtime Social Security slashers to co-chair it (along with an economist who has made cutting benefits her life's mission).
The president may resent the widespread lack of trust from members of his own party. But their distrust doesn't mean they're "sanctimonious" or "purist." It means that he's done very little to earn anyone's trust on this issue. Instead, he's given people every reason to doubt his willingness to protect Social Security.
Obama described his disaffected base as impractical people who only want "the satisfaction of having a purist position and no victories for the American people." But that assumes that this deal is a "victory for the American people." Yes, he won an extension of unemployment benefits. But when good liberal economists on the presidential payroll struggle to describe it as "a plan that's all about jobs," the gentlest thing one can say is that they're overstating the case. When it comes to jobs then, as Dean Baker succinctly says, the plan is "not trivial, but it's an order of magnitude less than what we should be looking for."
Worse, whatever gains working Americans might see under this plan is likely to cost them far more in the long run. It's not just that the $120 billion cost of the "payroll tax holiday" could be used more effectively in other ways. And it's not just that it could be distributed in a way that doesn't give yet another break to the wealthy. (Obama's economists keep repeating that this plan will save $1,000 next year for a family making $50,000, and that's true. But it will save more than twice as much ($2,136) for a family making $106,800, the current maximum for the FICA tax. And it will save $2,136 for a family making a million dollars. And $2,136 for a family making ten million. And $2,136 for a family making a hundred million...)
Those are serious flaws. But the biggest problem with the "payroll tax holiday" is the way it undermines Social Security.
The long game
It's no accident that the "payroll tax holiday" was first proposed by sworn enemies of retirement benefits on the deficit commission. We should be asking ourselves: When tax breaks can be designed in so many different ways, why did they choose this way? Why single out the only source of Social Security's funding? Could it be part of a long-term game plan?
Let's play out a likely scenario if this deal is enacted:
The 2% tax holiday expires in 2012, an election year. Meanwhile the government debt will have increased by $120 billion, the amount that will be paid into Social Security to cover the cost of this "holiday." Bear in mind: Never before in Social Security's 75-year history has it taken any funds from the overall Treasury. It's forbidden by law from adding to the deficit. That's why it has its own trust fund, which currently holds a surplus of $2.6 trillion. That's money the Federal government has borrowed, and which it's morally (and legally) obligated to pay back so we can receive our retirement benefits.
Flash-forward to 2012: The "holiday" is set to end. Republicans aren't likely to acknowledge that this was a temporary program, any more than they did with the Bush cuts. Any attempt to let the 2% cut expire will be spun as an "Obama tax hike" on the middle class. In order to believe this "holiday" is really temporary, you have to believe that Obama and other Democrats will be willing to take that kind of heat, under enormous pressure in an election year. Any takers?
Extending this 2% cut would gut Social Security's finances forever. But whatever happens, look at what Social Security's enemies will have accomplished:
What's more, would-be cutters like Maya McGuineas and Alan Simpson have made it clear that they'd love to get their hands on the $2.6 trillion in Social Security's Trust Fund to use it for other purposes (like covering the debt that was run up by tax cuts for the wealthy and a couple of wars). This will give them their chance.
How do you think all of this is going to play out? My guess is that the 2% cut will be extended for even the richest Americans. After all, 94% of the working public would see their payroll tax go from 4.2% back up to 6.2%. Can't you see the campaign ads now? "Democrats want to increase your payroll taxes by fifty percent!"
The pressure to cut Social Security benefits will be greater than ever. That will also give the slashers their chance to welsh on the promissory notes to the trust fund. They might even be able to do away with Social Security's separate accounts altogether. In the meantime, this deal will have ended the program's 75-year history as a program that working Americans, along with their employers, fund for their own future use.
That's why Social Security isn't just another government program, and it's why lower- and middle-income people support it so strongly : You pay into Social Security while you work, and then you collect from it when you retire. Its benefits aren't just another item on the Federal balance sheet, and payroll taxes aren't just another tax. By design, Social Security is a secure way for people to provide for their own future. This deal could end that forever.
Either the anti-Social Security conservatives have played a better game of chess than the President, or this is the outcome he wants. But it doesn't matter in the end whether he's been outplayed, or is playing one of those "three dimensional chess games"... in this case, with seniors as pawns. It's a lousy move either way.
Compromises should move us forward, not backward
As Nancy Altman pointed out, a permanent 2% cut would double the projected 75-year shortfall in Social Security, while lifting the payroll tax cap would eliminate that shortfall. The first option would benefit rich people and the second would help the middle class. Which option will be chosen in 2012 if this deal takes effect? Ladies and gentlemen, the betting windows are now open...
The president said this in today's press conference: "In order to get stuff done, we're going to compromise. This is why FDR, when he started Social Security, it only affected widows and orphans. You did not qualify. And yet now it is something that really helps a lot of people."
He's right. But when it comes to Social Security, this deal isn't the kind of incremental progress he's celebrating. It only makes it easier for Social Security's opponents to move us backwards, not forwards. And that historical reference makes his earlier defense of the program even less reassuring: "Let us ensure," said Obama's statement, "(that) we continue to preserve this program's original purpose in the 21st century." Meaning what? Only protecting widows and orphans?
FDR also said, "We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my Social Security program." Obama's deal would change that principle forever.
There are those who will argue this forecast is too pessimistic. But why take the chance when other stimulus packages would be more effective? There are also those who are unhappy when the President isn't trusted on an issue. But why hasn't he done more to earn trust on Social Security, especially before proposing a change of this magnitude? The bottom line remains the same: There's no reason for voters to swallow a bitter pill that could kill Social Security... and leave them facing an old age filled with uncertainty and fear.
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UPDATE: Steve Benen at Washington Monthly is among those pointing out that yesterday's deal won't touch the Social Security Trust Fund ("yet," I would add), which we also point out above. He adds: "For those of us looking out for Social Security, that's good news." That's like having your king in check in a chess game and saying "it's not checkmate, and that's good news."
To be fair, Steve also says " I don't doubt that it remains a GOP goal that Democrats are going to have to fight." But a relaxed attitude toward this "holiday" deal - "when listing legitimate concerns about the tax policy agreement, this one doesn't make the cut" - puts Social Security at risk. If this deal's accepted, it's bad news.
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Strengthen Social Security campaign. Richard also blogs at A Night Light.
He can be reached at "rjeskow@ourfuture.org."
Website: Eskow and Associates
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
They will demand their 10.4% or 12.4% so that they can purchase the same coverage cheaper from private companies.
That will be the end of Social Security!
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NO to cuts in Social Security funding (Obama's plan cuts employee Social Security funding by 30%).
NO to continued tax breaks for the wealthy
YES to extending unemployment benefits
It is silly to make the payment from Social Security cuts to payroll then the government pay that part that was cut. They could send the workers a check and see their Social Security wages on their w2 form.
It is clear that this is just a way to make the workers get used to the payroll money in hopes they won't want to pay it in to Social Security when the tax is reinstated.
It says we'll have a meeting to explain to us how it's going to work. The letter doesn't say what we'll have to do to up out of it. We'll know in January.
No way Jose' I'm giving money to the Wall Street crooks.
In a year, that Social Security defunding will become permanent ... who wants to "raise" the payroll back at that time? It will be a 50% increase!
It puts SS on the fast track to privatization ... and then ALL of SS will be turned over to Wall Street.
I wonder why they don't give the tax cut or at least part of it to the Medicare part. Profits by the health insurance companies?
Know this: At the moment there is a positive balance in the Social Security Trust Fund of almost TWO TRILLION DOLLARS. Yes - Trillions.
What's the problem with Social Security - since even through today, the contributions to the fund exceed the disbursements from the Fund? It need some fixing for the baby-boomers in the next quarter-century. And, there are lots of easy fixes, including removing the ceiling for Social Security just as was the removal of the ceiling for Medicare some years ago. That fix would make the Social Security Trust Fund viable for almost the next century.
Does the wingnut conservative, Alan Simpson, like this payroll tax holiday? You betcha. It is a way for him to take his fiscal knife to Social Security and hack it to pieces.
Beware, America. Mr. Obama is not a protector of Social Security.
SINK THIS TAX DEAL BETWEEN THE POTUS AND THE REPUBLICANS. SINK IT. AND LET THE POTUS TREAD WATER AS HE SINKS HIS PRESIDENCY.
If a person who is involved in a catastrophic automobile accident,manages to survive the crash, he or she will require a lot of help in order to recover. The same is true of the American economy. Most people, who are not trained in economics, do not understand just how catastrophic the 2008 world-wide economic collapse was. As the victims of Katrina, or any other natural disaster know, life does not return to normal for a long time, and it takes a lot of human effort to see any improvement.
It will take a long time for the economy to heal itself. Some economists are predicting that it may be five to ten years before the unemployment rate returns to normal. They could be right, if nothing is done to speed up the progress, but they don't have to be right. There is much that can be done to speed up the recovery.
The government cannot directly increase consumer demand, but the government can replace much of the lost demand by funding public works projects that will create jobs, which will increase consumer spending, which will further increase demand. Most of the jobs created with such programs would be private sector jobs. The government would provide the funding for new road building and other infrastructure projects, and seek bids from private contractors for the actual construction. The only reason for not doing this is that the conservatives would label it socialism.www.thebiglie.net
It's not addressing the issue. The issue is spending. WHEN will Congress approve a budget that is fiscally sound? Spending Spending Spending. Every Administration did it so it is accepted as a fact of life. How many Americans can automatically get a credit line increase on their CC when they over spend? If we can't, the Government should either.
Time to quick spendin gmoney like drunken sailors - my apologizes to all my fellow sailors :)
BTW, we fought WWII by borrowing and spending. Talk about a booming economy! Trouble is, we don't have all those manufacturing jobs - nor a need for them. So what to do, what to do. Oh, I know: just stop spending gmoney like drunken sailors.
In act two Obama falls on his sword again.
In the final act we see Obama fall on his sword.
There you have health care reform, ending the wars, and tax cuts for the rich.
Obama and his right wing friends are addicted to building economic bubbles and given the opportunity will keep creating bubbles until the final curtain falls.
Never mind what campaign promises Obama made during the 2008 election cycle. According to Obama, keeping your campain promises is just too pure and he is no purist.
"Mean what you do, what you say" is a phrase that every professional salesperson knows. If you want to have a long and successful career in sales you have to establish credibility by delivering on what you promise.
But Obama has not delivered and Obama will not have a long career. I have talked to many in the past two days who are not only abandoning Obama but are going to abandon the Democratic Party entirely.
It doesn't stand for anything anymore. A party has to stand on its platform values and fight until the bitter end for those values, even if they lose.
He reminds me of a lawyer we went to because of some landlocked land. A retirement vacation village joined the land out in the booneys.. We were told to start crossing their land and we would get permanent access.
We asked our lawyer about crossing to find out about what the law was, but he grabbed the phone and dialed the owner of the village and asked what they would charge for us to cross their right away which was a worthless 5 foot strip. They would not let us cross. We knew that because others had tried it. But it made them aware and they kept checking their line out. We bought a cabin and land in front of it that had its own access off the highway and joined our land.
Obama has the attitude that he can do anything he wants while dealing. It is not intelligent to mess with Social Security, that is the people's own money. What they pay into is called FICA, Federal Insurance Contributions Act. It really isn't even a tax.
Also, FDR set it up to where legally it had to be paid from payroll earnings. Obama is doing it illegally if he pays the 2% out of the general fund. He could pay the workers a refund instead.
He is robunctious and has no idea how important Social Security is to most people. He needs to be stopped.
Their karma is definitely not on my timeline...
I predict the incidents of senior citizens attempting bank robberies to go up significantly in the next 15 - 20 years.
Cutting tax, and thus cutting spending or increasing debt in a recession
will cause a depression.
Wake up.
Since Obama could not get the tax cuts extended for the lower and middle-income taxpayers without agreeing to extend them to the super wealthy, he should have just let all tax cuts expire. The tax cuts were never affordable in the first place, and they are even less so today. The increased revenue resulting from expiration of the tax cuts should have been used to fund public works projects to improve the nation’s badly deteriorated infrastructure, which would result in job creation.
The American economy has just as much capacity to produce and create jobs as it had before the 2008 economic collapse. The problem is that producers will not hire workers and increase production because consumers will not buy what they produce. Consumer are not buying as much as the economy is capable of producing because many do not have jobs, and those who have jobs are afraid they will lose them. The American economic system has broken down, and without government action it could stay broken down for a decade as it did in the 1930s. As new jobs are created, consumer spending will increase. As consumer spending increases producers will recall laid off workers and increase production to meet the increased consumer demand. The economy is not capable of healing itself in the short run. The government must take action. www.thebiglie.net
Obama can probably tell you more about what Reagan did than what FDR did.