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December 12, 2011
Continuing the Payroll Tax Cut: The End of Social Security As We Know It
Topics: Political News and commentariesCharles Blahous, a research fellow with the Hoover Institution, a senior research fellow with the Mercatus Center, and the author of Social Security: The Unfinished Work, explains, in detail, at e21 (Economic Policies for the 21st Centurty) that the ongoing effort to partially convert Social Security from payroll-tax-financing to income-tax-financing - by further cutting the payroll tax as a stimulus measure and replacing the funds with general revenues - may in short order put an end to the longstanding conception of Social Security as a benefit earned by worker contributions. The demise of this conception would also threaten the special political protections Social Security benefits have long enjoyed.
On this, Monty brings up a good point over at Ace's. Could this be exactly what the Democrats want to happen ... a manufactured crisis? It would indeed be an excuse to raise taxes:
(This is after all their modus operandi during the reign of His Majesty Barack Obama.) To the extent that the Democrat Party is "about" anything, it is "about" government and the welfare state, and it will fight to the bitter end to keep the welfare-state plates spinning.And it's not just Social Security that the Obama administration's agenda is putting at risk. It's proposed governmental accounting standards on the reported financial condition and funding status of 126 public pension plans has the potential of resulting in them running out of assets to pay their bills within 25 years.
Clearly, it's no stretch to say that the way things are going, we're fast-approaching a point of it being impossible to find a single aspect of our economy and financial security that hasn't been significantly if not permanently destroyed by Obama and his fellow Dems. In the meanwhile, the fact that the Democrats' ongoing effort to partially convert Social Security from payroll-tax-financing to income-tax-financing - by further cutting the payroll tax as a stimulus measure and replacing the funds with general revenues - is not necessarily an argument for not extending the payroll tax cut (and long-term unemployment benefits as well) as much as it is an argument for both paying for it and somehow insuring that is a one-time short-term cut.
However, as Alan Reynolds points out at the New York Daily News, there's also a another point that's far too often ignored: The president calls this perennial payroll tax holiday a "middle class tax cut" ... but this claim is an outright hoax:
Former Census Bureau economists at Sentier Research, John Coder and Gordon Green, estimate that more than half of this year's payroll tax cuts went to the most affluent 20%, while only 15% went to those with incomes below the median. Among the 77% of U.S. households who pay any payroll taxes, they find the top 10% got 31.3% of this so-called "middle class" tax cut while the middle 10% got 6.1%.And counterproductive shell games is really what the man that now 'occupies' the White House is really all about.The reason the bulk of payroll taxes are paid by the top 10-20% is not just because they earn more, but because they have more full-time workers per family. For 2010, the Census Bureau counts 48.3 million workers in the top fifth, 31.6 million in the middle and 10.2 million at the bottom.
And, unlike families with higher incomes from two full-time salaries, those with lower incomes are often retired or work part-time. There were about eight times as many full-time workers in the top 20% (16.6 million) as there were in the bottom 20% (2.2 million).
The point is, the President's incessant complaint that Republicans have blocked higher income tax rates for "the rich" -- which he suggests is a major reason for our terrible fiscal situation -- is a monumental fabrication. All of the Bush tax cuts are scheduled to expire at the end of next year, which will raise the top tax rate to 39.6% from 35% while also phasing-out deductions and personal exemptions at higher incomes.
On top of that, the Federal Health Care Act will add a 3.8% surtax on investment income, pushing the top tax rate to 23.8% on capital gains and 43.4% on dividends -- up from 15% today. And on top of that, the congressional Democrats are now proposing an extra surtax on incomes above $1 million -- ostensibly to "pay for" this one-year reduction of payroll taxes that primarily benefits the top 20%.
Add it all up, and it's a ridiculous and counterproductive shell game.
Posted by Hyscience at December 12, 2011 9:16 AM
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