Charles Ellison
+ FollowPayroll Taxes Get Cut – What About Social Security?
Another Christmas and yet another bitter, sandbox fight to the last word between Democrats and Republicans on Capitol Hill that had working folks and poor folks on unemployment biting their nails.
This time, it was over the payroll tax cut. Late into the pre-Christmas week before the remaining Members of Congress headed back to their districts for gift-wrapping and fundraisers House and Senate leaders managed to cobble together a deal.
The deal, however, only kicks the schedule up two months from now at a place where frustrated Members – only concerned with political optics – will go at it again. Remixing oldWashingtonsauce, Congressional leaders simply ripped a page from the debt ceiling debate and crafted a Senate-picked conference committee that will negotiate the terms of a year-long tax cut after January 1.
Many House Republicans are infuriated by any deal that makes the White House look good. Arriving at the point of a bruising fight over a tax cut is perplexing, as well, considering the bizarre nature of the debate. In a rare move engineered to attract independent-minded fiscal conservatives who would have otherwise thought twice about giving President Obama a second term, Democrats pushed a tax cut. Republicans, regardless of how many ways they sliced it and diced it, did not. It was slick political maneuvering.
But, hidden deep in the debate over the payroll tax cut is the fate of Social Security, a program that impacts the 70 million Americans who earned it. Some Hill insiders, exhausted from the back-and-forth indecision, wondered aloud about what constant temporary payroll tax cut “fixes” would do to the longer term entitlement.
“Forget about kicking the can,” complained one senior Democratic Congressional staffer requesting anonymity. “We might be kicking Social Security in the gut if we keep it up at this rate. You keep cutting the payroll tax and you might end up having next to nothing to pay for Social Security.”
Payroll taxes, for true, are the primary funding source for Social Security. Interestingly enough, most reports conveniently omit the fact that it’s really a “Social Security payroll tax.” This is the tax that, theoretically, is supposed to end up directly in the pockets of retirees. Constant cuts to those, the argument rings, could harm Social Security down the line, particularly if the cuts get longer and more sustained – something worrying many analysts who are watching the debate closely. Workers looking for the short term grace of an extra $40 a paycheck may be stunned when retirement approaches to one day find an insolvent and non-existent entitlement.
Lack of willpower inWashingtonis driven by the greed of reelection in 2012. Neither party wants to be the one that is seen as taking money out people’s paychecks, which is as simple as the political narrative gets. Hence, politically, the White House outwitted and played House Republicans in the final analysis. “Senator Reid and I have reached an agreement that will ensure taxes do not increase for working families on January 1 while ensuring that a complex new reporting burden is not unintentionally imposed on small business job creators,” said House Speaker John Boehner after the deal was reached on Thursday afternoon. Translated: I don’t want anybody pointing fingers at me come Election Day.
“Because of this agreement, every working American will keep his or her tax cut – about $1,000 for the average family…. Vital unemployment insurance will continue for millions of Americans who are looking for work. And when Congress returns, I urge them to keep working to reach an agreement that will extend this tax cut and unemployment insurance for all of 2012 without drama or delay,” said the President. Translated: Remember what I just did for you on Election Day.
Essentially, both sides use the tax cut as voting pay-to-play, ethereal funny money used to bribe the voter subconscious into thinking they get something for next to nothing. All they have to do is vote for that person in November.
But, in the statements and funky platitudes flowing out ofWashington, there is no mention of what this means for Social Security, the long heralded titan entitlement once thought of as untouchable. Yet, in the constant tennis game over debt and deficit, politicians keep biting at the edges of Social Security, inching closer and closer to its demise or the point where they can comfortably say it’s no longer viable – just enough without offending the massive voting bloc that loves it so much.
Therein lies the problem: Social Security is too much of a risky long game these days. Tax cuts are an easy short sell, money you make at theAtlantic Cityslots or that bet on the right horse.
“Middle-class working families need tax relief to help them survive in this terrible economy,” Sen. Bernie Sanders (I-VT) conceded earlier in the week, “but diverting billions of dollars from Social Security to provide that tax relief is wrong. This continues a dangerous process that began last year. I strongly believe tax relief should be done in a different way.”
Sanders, keeping it straight with no chaser, was one of a daring few on Capitol Hill that attempted to explain the real risk behind the payroll tax cut. If you keep cutting payroll taxes, where are you going to get your Social Security from?
“If Congress continues to cut the program’s funding source, one of two things must happen: 1) Social Security’s insolvency will be accelerated; or 2) Social Security will have to increasingly rely on general revenues (i.e., income taxes) to pay beneficiaries,” explains the Mercatus Center’s Charles Blahous.
That tension, however, between short term electoral gratification and long term commonsense is palpable as media heads, pundits and Election [Game] Day strategists play gotcha with candidates. It was played out in a recent interview in which CNN’s Wolf Blitzer backed GOP Presidential candidate and former Senator Rick Santorum (R-PA) into the corner.
“But am I hearing you correctly, Senator?” asked Wolf on prowl for a rating and an Emmy. “You’re saying you do want to increase taxes January 1st for 160 million Americans?”
Santorum, nervous, waffled around at first. “I want to keep the tax – the taxes leveled on Social Security right now – the taxes leveled do not pay the benefits,” he replied. “There is more money being paid out in Social Security benefits than there is coming in to Social Security trust fund dollars.”
But, a second later, the fog cleared up and Santorum was sounding as if he’d been coached by liberal nemesis Bernie Sanders. “I am for tax cuts. I’d be very happy to come back and talk to the president about how we’re going to provide tax relief for millions of Americans. But I’m not – I’ve never been for a Social Security tax cut, because it undermines our ability to pay Social Security benefits.”
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