Payroll Tax Cut Baloney

There’s a lot of baloney being tossed around about extending the payroll tax cut into 2012.  I’m a meat and potatoes guy.

Baloney – “Doesn't anybody get the fact that this credit is only stealing from Social Security. It shouldn't be extended at all! They are all idiots!” (comment posted on Yahoo)

Meat and Potatoes – The Social Security Trust fund is an accounting gimmick.  It’s like saying you have $100,000 in savings, but you’ve loaned it all to your checking account ... which is overdrawn. 

In reality, it’s all the same money. We have one federal government and it has income and expenses. Our war on Iraq and Afghanistan was stealing from Social Security. The Bush tax cuts stole from Social Security. Food stamps are stealing from Social Security. In other words, any expense increases or income reductions are “stealing” from all of the other budget items.

Baloney – “With our huge debt and deficits, we can’t afford this payroll tax cut.” (Republicans) 

Meat and Potatoes – The baloney here isn’t about affording the payroll tax cut, it’s about affording tax cuts on capital gains, inheritance and income. Whenever the Republicans want to cut taxes for the wealthy, they say that a tax-rate cut will stimulate economic growth and actually bring in more tax dollars. But when it’s a tax cut targeted at regular working people, Republicans change course and say that the stimulus argument is no longer valid. How convenient.

The reality is that a tax-rate cut doesn’t result in higher tax collections unless the tax rate is pretty high and the cut pretty substantial. Given our current tax rates, minor increases will bring in more money and minor decreases will bring in less.

It’s true that we can’t afford this tax cut unless it’s offset by spending cuts or replaced by other income. However, ordinary working people have taken the hardest economic hit over the past few decades and a reduction in payroll taxes will benefit them the most. That seems fair and right. It can be “paid for” with higher tax rates for the people who have prospered the most over the past few decades—those with incomes so high that they don’t pay any social security tax on the majority of their income.

Baloney – “I support a payroll tax cut, but I’m against the one proposed by Obama because it’s temporary.” (Professional Baloneyers)

Meat and Potatoes – What tax rates aren’t temporary? They can all be changed if Congress wants them changed. Putting an expiration date on a tax rate change simply sets a more specific date when the issue will be reconsidered. Even if the payroll tax reduction was “permanent," the rate could be increased at any time.

The real issue here is the “paying for it” part. Democrat baloneyers say they’re paying for a one year cut by increasing income taxes on the wealthy—but that's over several years. The high-end income tax increase doesn't cover the payroll tax cut on an annual basis. Republican baloneyers advocate a "permanent" payroll tax cut only so that Democrats can’t can use the pay-me later gimmick. Most Republicans actually don't want a payroll tax cut at all because it puts a greater tax burden.

This posturing is all being done simply to put the other party in a bad light for the upcoming elections. People who pay attention know it’s all hooey, but they also know that getting the votes of people who don’t pay attention will decide the election. So they play their PR games.

Baloney – “House Republicans Cave In," “Obama Victorious Over House Republicans” (News Headlines)

Meat and Potatoes – These were the headlines when the House agreed to a two-month payroll tax cut extension on Thursday. Most media emphasized the winners and losers of the political battle. As usual, the politicians that gave in or compromised were slammed as weak while the “my way or the highway” people were lauded for their determination and principles.

The politicians that truly deserve praise are those that sacrifice political points for the country’s best interest. How about a headline that respects the House’s decision to work with the president and Senate such as “House Reluctantly Agrees to Extension?" Maybe our government would be more effective if politicians scored political points for being reasonable rather than being divisive and stubborn.