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.
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.
