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As I’ve said, it doesn’t really look as if the Republicans want to extend the payroll tax cut. The reasons for this are almost certainly tied up with the fact that extending it would prevent a fiscal drag in 2012, meaning that the economy would be in worse shape for the incumbent President in an election year. But they cannot just come out and say that they want to tank the economy to make it easier for candidate Romney or Gingrich. So they have to change the terms of the debate. That’s what Rep. David Schweikert trotted out today.
Unlike other taxes, which go into the general fund after collection, revenue generated by the payroll tax goes directly toward financing Social Security.
Although the president’s payroll tax holiday would keep an estimated $265 billion in American pockets, what must not be lost in this discussion is that these dollars will come directly from debt paid back by U.S. taxpayers because they are owed to the Social Security trust fund.
This in turn increases the nation’s debt because it eventually leads the Treasury to bail out the lost revenue in the Social Security trust fund.
That’s an accurate summary of what would happen. It also represents Republicans, all of a sudden, expressing deep concern for Social Security’s long-run finances, something they have been fairly silent on for, oh, the bulk of the history of the Republican Party. To the extent that there was any talk about the Social Security funding mechanism at all, it was to demonize it as a Ponzi scheme or shriek that it must move away from a defined benefit and toward a privatization scheme. Now, because they’re not interested in passing an extension, the crocodile tears about the trust fund, which in the past they’ve called a mirage, come out.
This is just the fear that many on the left had about using the payroll tax as a stimulus mechanism in the first place. It replaced the Making Work Pay refundable tax credit from the Recovery Act, which did nothing to the Social Security Trust Fund whatsoever and which was actually a better deal at lower incomes, for those making under $20,000 a year. The conceit was that cutting payroll tax would provide more bang for the buck, but that could be dismissed simply by increasing the refundable tax credit. But instead, we got into the payroll tax, which raises all of these knotty issues around Social Security. Plus, it gives Republicans a plausible reason not to extend it.
Which they clearly don’t want to do. Otherwise, they wouldn’t want to include poison pills like changing the authority for the Keystone XL pipeline in the deal. Even with that, John Boehner and the GOP leadership cannot corral the House rank and file. They simply don’t want to an extension this become a reality.
More from Brian Beutler.
26 Comments
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Good. The extension of this cut is a bad thing all around. And if ending it makes the economy worse under this incumbent lying sack of shit President, so much the better. This tax cut was never a real solution to our economic problems.
Hate to say it, but things gotta get a whole lot worse before enough of the populace will wake up and propel the engine of rebellion and reform forward.
Lemme see if I got this right, I mean correct…..the republicans are doing the right thing but for the wrong reason?
I wouldn’t mind $1,000. I’d put a new fence. But, not if I have to pay it back later with interest.
Yes, that occasionally happens. It’s worth taking a win any way you can, because they don’t come often.
If this winds up taking Obysmal down, he deserves if for not working to let the Bush tax cuts expire.
If the Democrats want to extend the payroll tax cut and aren’t just using this as a way to undermine Social Security, they should return to MWP. The Republicans are right despite themselves – the payroll tax cut as it is now should expire if it is going undercut Social Security’s revenue stream…if anything, the Social Security tax should go up.
Sorry to betray my ignorance, but MWP stands for?
“the republicans are doing the right thing but for the wrong reason?”
That’s been the case since Obamacare.
“I wouldn’t mind $1,000. I’d put a new fence. But, not if I have to pay it back later with interest.”
Yeah, it’s like would you like a new fence now if it meant you couldn’t retire until you were 70.
Making Work Pay
Hey, let’s not tell THEM they are right this time. It’ll just give them a big head.
Duh, sharp as mashed potatoes, that’s me.
Thanks. I don’t need a new fence THAT badly. I’ll just prop the old one with some 2X4′s.
Hey, I thought it was a new Acura model or perhaps “Mass weapons of proliferation”.
Huh???
Pigs started flying???
One outside my windw as we speak!!!!!!!
“It’s worth taking a win anyway you can.” That’s for sure.
With the economy skating on the edge of recession, the middle class needs help. The payroll tax cut and unemployment extension are not the best way to help, but not much else is on the table.
I don’t understand politics. How can Republicans run on a platform of “vote for me, I raised your taxes by $1,000 and plunged the economy into another recession”?
I usually agree with you. But not on this. Suddenly it is Social Security taxes that drag the economy? But the Big Delusion is that tax cuts help the economy, during a unfunded war. There is no proof that tax cuts do anything other than increase the deficit. This is Republican Propaganda 101, that Obama has adopted.
Our President is dedicated to destroying Social Security. If the R’s support financing of Social Security, they have a winning issue.
Agree with you on that. Someone needs to stop O from gutting the safety net. I have said all along the payroll (FICA) tax cut is a bad idea. It is a Republican idea at that.
“But the Big Delusion is that tax cuts help the economy, during a unfunded war. There is no proof that tax cuts do anything other than increase the deficit. This is Republican Propaganda 101, that Obama has adopted.”
Yeah, I don’t get why both the left and the right suddenly feel that we can tax cut our way into prosperity. I guess the old right is the new left. FDL saying that Social Security is a drag on our economy isn’t exactly helpful to sustaining Social Security.
Unlike other taxes, which go into the general fund after collection, revenue generated by the payroll tax goes directly toward financing Social Security.
Not true. All tax receipts flow into Treasury General Fund, including Social Security taxes. Its not like the FICA chapter of the Internal Revenue Code Ch hides the ball on this, “(a) Old-age, survivors, and disability insurance… In addition to other taxes, there is hereby imposed on every employer an excise tax, with respect to having individuals in his employ…”
Only after the fact does Tsy transfers dollars from TGF into the Social Security trust funds, its true that the law typically requires the transfer sum to match FICA tax revenue sum collected earlier but its not to say payroll taxes directly fund Social Security taxes. Indeed, there’s no real economic reason to even use trust funds, I suspect the political intent was to distract people (including some congressmen apparently) from noticing that– contrary to the custom of annual appropriations– SS is funded out of an appropriation bill that’s been open for 70 years.
There is hereby appropriated to the Federal Old-Age and Survivors Insurance Trust Fund for the fiscal year ending June 30, 1941, and for each fiscal year thereafter, amounts equivalent to 100 per centum of… the taxes imposed by subchapter A of chapter 9 of such Code with respect to wages (as defined in section 1426 of such Code), and by chapter 21…
This suggest a simple way to reform Social Security to keep it solvent forever without cutting benefits or raising taxes; just replace the bolded words above with.. “such sums as may be necessary for the purpose of carrying out Title 2 of the Social Security Act” (and then striking everything after).
I do not agree with cutting ss taxes but I do not understand these republicans,they are fighting against this tax cut but they want to make the bush tax cuts permenant no questions asked?
“Knotty issues” – thank you, David, thank you!
I’m happy for the Republicans to be fronting this, even though that in normal times would be the kiss of death from a progressive standpoint. These are not normal times and a stopped clock is absolutely right on target twice a day.
Let the stupid cut sunset!!!!
Remember Big Dawgs remark caught on tape as he entered a Peterson sponsored conference?
Something about they have to fix the SS problem..
Woof..
What you are suggesting is exactly what the GOP is protesting – General Fund payments to SS increase General Fund debt directly -
“Although the president’s payroll tax holiday would keep an estimated $265 billion in American pockets, what must not be lost in this discussion is that these dollars will come directly from debt paid back by U.S. taxpayers because they are owed to the Social Security trust fund. This in turn increases the nation’s debt because it eventually leads the Treasury to bail out the lost revenue in the Social Security trust fund.”
of course SS surplus decreases both the National Debt and the capital market gov debt, and via a pretend also decreases the “budget deficit” by the same amount – and the GOP were OK with that post the Reagan massive payroll tax increase, made so we can pre-pay those Boomer retirements that are starting soon via the money accumulated in the Trust Fund from all those surpluses.
At least we should make clear that the GOP are not telling lies – and are not claiming that SS finances are hurt by the tax cut – since SS finances are not really affected given the money not collected is replaced – sent to the Trust Fund anyways – from FIT tax collections.
They are complaining that the replacement of the payroll taxes – heck actually the non-collection of those payroll taxes – leads to greater debt levels to finance via borrowing. Gee – guess that is the definition of a “stimulus” isn’t it?
Thanks, Beowulf.
Also, there is this from a comment by mytwocents back in September. It shows that the December 2010 payroll-tax cut did not impact the SS Trust Fund, since it was fully reimbursed from the general fund for any loss of revenue.
Consider the following two classes: the payroll-tax payers and the income-tax payers. Almost all of the payroll tax is paid by the working class or is payed on their behalf by their employers, which amounts to the same thing. On the other hand, 40% of income tax is paid by the 1% and 70% is paid by the 10%.
When the Treasury borrowed $2.6 T from the SS Trust Fund by selling them “special” Treasury Bonds, they were funding an income tax decrease. I.e., the 1%/10% was borrowing from the working class.
So, insofar as the General Fund, which is paid for by the income-tax payers, is funding the payroll-tax cut, that’s a bit of turnabout but not anywhere near the $2.6 T that has gone the other way.
Of course. The payroll tax is paid by the working class, whom Republicans hate. The income tax is mostly paid 40% by the 1% and 70% by the 10%, whom the Republicans love.
The key point is that the economic multiplier (Change to GDP per dollar) is .29 for the Bush tax cuts and 1.29 for the payroll tax cuts according to 2008 written testimony to Congress by Mark Zandi, an economic analyst at Moody Analytics and economic advisor to the McCain Campaign.