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December 10, 2010

The fix is in for Social Security

When Obama announced his deal with the Republicans, I said that I was suspicious of his decision to reduce the payroll tax from 6.2% to 4.2% for one year. I said that this would help to actually create a crisis in the Social Security trust fund (that is currently in good shape) that those who want to loot that fund need in order to push through their plans. I am becoming more and more convinced that my cynicism was justified.

The first reason is that we have seen that no tax cut is 'temporary'. As with the Bush 'temporary' tax cuts that were due to expire this year, not continuing them is now being portrayed as a tax increase. So it will be at the end of next year when the payroll tax cut expires. People who oppose the end of this cut will refer to the end as a tax increase and the Democrats will cave and continue it, and this will actually throw all the actuarial calculations out of whack, just as the looters want.

Secondly, the idea that the payroll tax cut will spur consumption (that will in turn act as source of economic stimulus) does not hold up. The small rise in the take home pay (less that $100 per month for a median household income of $50,000) is unlikely to cause people to rush out and buy stuff. If a one-year stimulus plan were the goal, it would have been better to keep the tax level unchanged and send that same family a single check for $1,000, which has a greater chance of being spent. This is the same kind of gimmicky tax rebate stunt that George W. Bush pulled, but it causes less damage than a 'temporary' payroll tax cut that will become permanent. (Note that I personally think that a consumption-based economy is insane but for the purpose of argument I am staying within that framework.)

I have a very bad feeling about this. It reinforces my belief that when it comes to adopting policies that harm the poor and middle class, the Democrats are the party of choice for the oligarchs because they know that party supporters will not revolt against their own leadership. They used Bill Clinton to cut welfare benefits to the poor and they are using Obama to attack Social Security. Their plan seems to be working.

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Comments

I have not seen anyone commenting on the payroll tax reduction with a proposal to pay for it. This is a dogma of the hard right fiscal conservatives.

Color me amazed, as the obvious solution is to up the Cap on the deductions or even do away with it altogether. This would not only pay for the proposed cuts, or even deeper cuts, but insure the solvency of S.S. well into the future.

But inso doing this would expose the lie that to cut the deficit we must make deep cuts to "ENTITLEMENT PROGRAMS"

Can't force the Republicorps to give up a cherished meme as it might hurt their feelings. Or more accurately pull the rug out from under one of their most odious lies they use to instill fear into the middle class.

Posted by James Morris on December 12, 2010 03:22 PM

I too am wary of the payroll tax deduction. I am an employer and don't feel like anyone will really notice the difference. I feel it is all politics as usual. If they want make a difference and stimulate something effectively how about not collecting payroll tax at all for a quarter or so?

Posted by Steven Jackson on December 12, 2010 03:27 PM

I tend to agree with parts of what both James and Steven are saying above. What happened to pay as you go. Seemed like it was a big deal earlier this year but I guess they are done with that idea. Steven is right in that it is more business as usual in DC

Posted by John Rossen on December 13, 2010 06:40 PM

COrrect, John. From Congress down to most individuals we want to get everything now and pay later. When will it end. Take a look around at the record number of BKs out there over the past two years. Argggghhh

Posted by Dr. Siena Jonnes on December 30, 2010 02:14 PM