We Can’t Afford the Payroll Tax Cut Extension
Americans should be used to the high political drama coming out of Washington. Oh, there are the stories of marital infidelities, disappearing Congressional aids, toe-tapping senators and the like. Then there are the great debates where both sides of an issue scrap and claw their way to political pay dirt. Healthcare reform and the recent battles on raising the debt ceiling come to mind. Funny how things always come together at the 11th hour?
Currently on the docket is the payroll tax cut extension. Passed in 2011, the payroll tax cut reduced a taxpayer’s contribution toward Social Security from 6.2 percent to 4.2 percent. The goal of the legislation was to put more money in taxpayers’ hands in order to stimulate the economy. The measure expires on December 31, 2011.
Now, the drama comes in because the Democratic controlled Senate approved a two month extension to the measure while the Republican controlled House rejected the Senate plan in favor of a one year extension. Democrats are bent on their bill and Republicans on theirs with time quickly running out. If an extension is not approved by December 31, 148 million Americans will see their taxes go up – at least that is the story coming out of the White House.
In the first place the name of the measure is a bit of a misnomer intended I am sure to confuse many taxpayers. The payroll tax cut is not a cut to a worker’s income tax amount. It is a reduction in the amount that workers pay into the so-called Social Security Trust Fund. In other words, it is akin to paying less on a retirement annuity each month but still maintain eligibility for full retirement benefits under the original policy. An annuity holder would never expect this allowance. For the life of me, I can’t understand how the average taxpayer would – unless they have been confused.
Secondly, the propaganda pundits on the MSM are claiming that if the tax cut is not extended it will potentially push the U.S. economy into a recession. Of course, that is the knee-jerk reaction of all Keynesians when it comes to government intervention in the economy. They believe in the more the better with no regard for tomorrow since “in the long run we are all dead”.
And essentially this tax cut extension is a Keynesian spending program because the tax pays for an entitlement that has to be paid to retirees. With a drop in tax revenues the government will have to print money in order to meet Social Security obligations. Those obligations simply aren’t going away and have to be met.
The problem with more spending is that it doesn’t work to stimulate the economy out of recession. Since January 2009 the federal government has spent $4.5 trillion. Unemployment is higher, food stamp rolls are at an all-time high, and many Americans are still losing their homes. When is enough enough?
Lastly, how smart is it to cut funding for a program that is already bankrupt? The Social Security Trust Fund already pays out more than it receives in tax revenues. Future unfunded obligations for both Social Security and Medicare are over $50 trillion. Given the program is not going to end anytime soon, putting it in even worse fiscal condition borders on the criminal.
The payroll tax cut is nothing more than another something for nothing proposition. It has not helped the economy so far and an extension would further devastate the fragile balance sheet of Social Security and Medicare. Once again Washington is offering the world – more free money, Social Security intact, no spending cuts, and a blind eye to trouble down the road. It is amazing that Congress and the President can’t find a measly $100 billion to cut from the enormously bloated federal budget to pay for the plan. With leadership like that in Washington it will be a miracle if the economy doesn’t eventually fall over a cliff. But have no fear, I am sure Congress and the President will get together at the 11th hour to produce the tax cut extension.
Article first published as We Can’t Afford the Payroll Tax Cut Extension on Blogcritics.
Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina