Thursday, December 09, 2010


Economics vs. Common Sense

A Cocktail Party Analysis

One of the least publicized, but most onerous, provisions of the Obama-Republicans compromise on tax legislation is the item that would reduce social security tax withholding by two percent throughout 2011. This sounds like a winner for American workers. It’s a potentially huge loser.

The tax holiday was recommended by economists, according to news reports, as a very effective way to quickly pump money into our struggling economy, thus creating jobs. That could possibly be correct, although it would be easy to find a bevy of economists holding other views. The old adage usually holds true—“If you laid all the economists in the world end-to-end, each would point in a different direction.”

In this case, the Obama economists have only theory in their corner, as economists often do. They have no real proof that this kind of pump priming will create or preserve any jobs. In this case, if those who favor this tax holiday have a sound argument for their position, we have yet to hear it. It would be a quick injection of spending power into the economy, that’s all. It surely would create some profits for businesses. Anything else is conjecture.

What Obama’s advisors and he are ignoring is the bigger picture. They say the $120 billion or so cost of this gift to working people will be repaid to the social security trust fund from “other general revenues.” Truth is, we have no “other general revenues” available to pay much of anything back. Our public treasury is trillions of dollars in the red, and projected to be so for many years into the future.

The social security trust fund at the moment is in the black. It has large reserves invested in special U.S. Treasury bonds. But, the treasury must make good on those bonds not many years from now, when annual social security payments begin to exceed payroll taxes collected to support them. At that point, social security starts going broke, and many years from now would become able to provide only a fraction of today's benefits. That’s just what the guys who negotiated with Obama want. They want to kill social security.

Do you believe that a year from now there will be a rising groundswell of public opinion for the government to take money away from all working people by restoring social security payroll taxes to current levels? Damn right there won’t. It would be political suicide. Once this gift is made, it will be very difficult to take it back.

The fact is that Social Security financing would be much less solid, a welcome development for those who want to destroy the system. They would use that as an excuse to privatize the system; that eventually would kill it. Gambling in the stock market with funds that now go into the social security trust fund offers no safety, and social security was designed to be a safety net.

Common sense says the temporary “gift” to workers should be dropped from the tax settlement. It is bad public policy that would endanger the future of social security, a truly successful insurance program that allows millions of worthy American citizens to live out their lives with a measure of dignity.

The Cocktail Party strongly recommends that this smelly part of the tax compromise be poured down the drain.

5 comments:

Alan G said...

I absolutely agree with the Cocktail Party on this one - this is a very bad move. I, for one, can attest to my younger days when I would be chomping at the bit each year to having my social security taxes paid up and would get that pay increase toward the end of the year - brief as it may have been. When you’re young you aren’t the least bit interested in any future Social Security benefits and bitch about paying them every time you see your paycheck. And by the time you reach your mid-forties, early fifties, and start thinking about the importance of those benefits, including Medicare, you and the government may have pissed them away.

As we have watched the unemployment situation develop during a financial crisis of biblical proportions, one can only imagine where those such as we would have found ourselves had those Social Security benefits we depend upon been resting in the hands of Wall Street. It’s one thing to be unemployed, it’s another thing to be seventy years old and unemployed.

I am under the opinion that Obama has already begun his re-election run that is pretty much what this latest deal is all about!

schmidleysscribblins.wordpress.com said...

Looks like you get your wish. Nancy and her pals pulled the deal today. Can they come up with something better? I hope so.

Anonymous said...

I absolutely agree with the Cocktail Party on this one - this is a very bad move. I, for one, can attest to my younger days when I would be chomping at the bit each year to having my social security taxes paid up and would get that pay increase toward the end of the year - brief as it may have been. When you’re young you aren’t the least bit interested in any future Social Security benefits and bitch about paying them every time you see your paycheck. And by the time you reach your mid-forties, early fifties, and start thinking about the importance of those benefits, including Medicare, you and the government may have pissed them away.

As we have watched the unemployment situation develop during a financial crisis of biblical proportions, one can only imagine where those such as we would have found ourselves had those Social Security benefits we depend upon been resting in the hands of Wall Street. It’s one thing to be unemployed, it’s another thing to be seventy years old and unemployed.

I am under the opinion that Obama has already begun his re-election run that is pretty much what this latest deal is all about!

--sent by Alan G, 12/9/10

Sightingsat60 said...

The thing about SS taxes is that the levy is split between employer and employee -- so it doesn't seem as high as it is. Me, I pay the full 15% on the income I make b/c I'm self-employed. And lemme tell you -- that's a big hit!

So I think it's a good thing to lower the SS tax.

However, I also say that the SS tax should apply to all wages, and not be capped at $106,800 as it is currently. Why should any income over $106,800 be SS tax free? Why should the person making $1 million a year pay the same as a person making $106,300 a year? I don't see any reason why the SS tax should be regressive.

If the govt. got rid of the cap, then SS would still be funded, and middle class wage earners could keep the lower SS tax rate.

Dick Klade said...

Yes, Sightings, that 15 percent whack hurts. We paid it for 13 years after I "retired." The self-employment income was a relatively small, but important, part of our total income.

I would stand with you in favor of a reduction in the rate and elimination of the cap on the fat cats if the math worked. Unfortunately, all the number crunchers I've heard about say that the present tax rate plus removal of the cap are necessary to make social security solvent in the future.

Maybe they're wrong, and that would be good. As you say, we seniors are taking a lot of hits in the machinations designed to get the economy moving again.