Payroll Tax Increase: Political Gamesmanship
Dec 07
Democracy and Power 108: Obfuscation
Wherever politics intrudes upon economic life, political success is readily attained by saying what people like to hear rather than what is demonstrably true. Instead of safeguarding truth and honesty, the state then tends to become a major source of insincerity and mendacity. – Hans F. Sennholz
Payroll Tax Increase: Political Gamesmanship
Advantageous political gamesmanship prevails over serious governance.
America has dangerous debt caused by politicians – Republicans and Democrats. Social Security is an unfunded liability and a major contributor to America’s fiscal crisis. How is DC confronting the crisis? Political gamesmanship as usual.
Presently, Democrats have a winning political tactic and are skewering Republicans over a payroll tax increase of $1,500 for typical working families. Always ready to gain a political advantage, James Kvaal, Policy Director of BarackObama.com, released an email claiming the cuts will help 160 million people and would be paid for by taxing millionaires and billionaires.
In case you missed it — yesterday Congress voted on a bill that gave them two simple choices:
A) Let President Obama’s payroll tax cut expire, raising a typical family’s taxes by more than $1,000 next year, or
B) Extend and expand the tax cut, helping 160 million people and letting that same family keep $1,500. Click here to find out what it does for you.
The payroll tax cut would be paid for by requiring millionaires and billionaires to pay a little more. But some in Congress think millionaires and billionaires should get to keep paying the already-low rate they get, thanks to the Bush tax cuts.
Politico labeled similar tactics as a “political gimmick” when commenting on Senator Conrad’s (D-N.D.) acknowledgment for a need to find a serious means to pay for the reduced revenue, Politico reported.
“Sen. Kent Conrad (D-N.D.) said the new Democratic plan will be “paid for in a serious way” — an admission that the Democrats’ surtax on millionaires was little more than a political gimmick.”
How should serious politicians govern?
First, admit the “payroll tax” is really the Social Security tax. Second, admit that Social Security’s unfunded liabilities are enormous. Third, realize the “serious proposal” being offered will not substantially reduce the debt caused by Social Security. Lastly, realize a complete restructure of the Social Security and Medicare system must occur.
Because political avoidance and gamesmanship will always prevail, the only real solution is establishing personal accounts for Social Security and Medicare. When Americans own and control their accounts, politicians will be prevented from diverting other people’s money for their political gamesmanship and aggrandizement.
While I suspect that we would agree on much, I think you have missed the real issue at hand.
The payroll tax cuts are favored as I understand it by both parties. The only difference is how to pay for it. Both parties want to let Social Security’s problems bleed into the general taxpayer.
What you are missing is that demographics have shifted against the Social Security. 2010 was the first year in which a majority of voting aged Americans can expect to get substantially less than what has been promised. If you are 42 today, you are scheduled to retire the year that the trust fund hits zero. If you are 47 today, you can expect to live long enough to see your benefits substantially reduced. No politician wants to tell an audience that large that their taxes are going up. And if you think it is painful now, wait until 2014 when a majority of register AND active voters are getting a substantial cut in promises.
The 2nd issue that you have missed is that at 15.3%, payroll taxes are killing the jobs needed to push the question of Social Security out of the next election cycle. All of these politicians understand that the economy is job 1, and that payroll taxes are not sustainable at 15.3%. So every politician is trying to push Social Security funding onto the general taxpayer.
When you put these two things together it means that Social Security is structurally unsound and a majority of voters will have figured it out within about 2 years.
I don’t see how privatizing the system changes either of these things. When we divert cash from payroll taxes to PRAs, the general taxpayer will pay the difference. And you are still on a two year time table. People don’t want PRAs. They want out of Social Security.