The US House of Representatives passed on Tuesday (December 13, 2011) a bill that had in it a key Social Security tax component that Obama favors: it would keep 160 million workers from seeing their payroll tax go up on January 1, 2012, from this year’s 4.2% back to 6.2%. The bill ignores Democrat proposals to place a surtax on people earning more than $1 million annually to offset the payroll tax non-increase. BTW, because the bill also has a clause in it about the Keystone XL pipeline, Senate majority leader Harry Reid (D-NV) said, “It was dead before it got to the Senate. The Senate will not pass it.”
So, with that as a background, let’s look at the affect that this bill (and Obama policy) could have upon Social Security.
A Social Security trustee, Charles P. Blahous III, a member of the board of trustees for Social Security and Medicare, says that extending the cut in the Social Security tax could make the program more dependent on income tax revenue in the future, thus leaving it with less political protection than it has now. Replacing Federal Insurance Contributions Act (FICA) with income tax revenue would change Social Security, making it more like other entitlement programs that are subject to political whims and budget priorities. Said Blahous, “It’s really basically a conversion of the system from payroll-tax financing to partial income-tax financing.”
Obama and Democrats want to extend the 2% FICA reduction for another year. But doing so would reduce funding for Social Security by $119 billion over the next year on top of the $105 billion in reduced funding this year. Democrats propose to offset the 2012 funding shortfall by raising taxes on people making over $1 million per year.
When President Franklin D. Roosevelt established Social Security, he designed it to be funded separately from the general tax fund, a “trust fund.” He was quoted as saying, “We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.” Wanna bet? Politicians (of both parties) raided the Social Security trust fund for years. That it now contains $2.68 trillion is a myth. The board of trustees for Social Security and Medicare issued a report in August, 2011, saying that Social Security ran a deficit in 2010 for the first time since 1983. The deficit for 2010 was $49 billion, and the deficit for 2011 is projected to be $46 billion.
“So, with that as a background, let’s look at the affect that this bill (and Obama policy) could have upon Social Security.”
You want to use effect there rather than affect.
The Senate passed it by the way, 89-10 I believe was the vote tally.
Bluff called, Bamster. Make a decision.
@Meremortal: Yes, Meremortal, you are correct. Good catch. I do know the difference between “affect” and “effect.” Can I plead typo?
@Warren: Typo offically recognized, carry on!
The $2.69 trillion social security trust fund is NOT a myth.
In the early 1980s, there were large tax cuts favoring the wealthy, combined with substantial increases in the (hugely regressive) payroll and self employment (social security) taxes. What ensued were soaring general budget deficits, along with yearly social security surpluses. Basically, tax hikes on average Americans went to subsidize the tax cuts for wealthy Americans.
But there was a promise made by both parties and the President to the average American people who were now paying more social security tax. Any surpluses would be invested as interest bearing T bills — the exact same T bills, paying the exact same interest rates, as those issued to private pension funds, wealthy individual investors, foreign governments’ (e.g. China) sovereign wealth funds, etc.
Today those Social Security T bills total $2.69 trillion in accumulated principle plus interest. It’s no different than the principle and interest in the T Bills purchased and held by the Koch brothers, Warren Buffett, Goldman Sachs, the State of Texas employees pension fund, the Arizona state and county sheriff’s pension funds, the Peoples Republic of China, and everyone else who purchased those T bills and are counting on receiving the payouts promised.
There is enough in the T bills held by the Social Security trust fund to keep Social Security solvent for decades, before which permanent fixes will be put into place.
There’s nothing at all wrong with collecting income taxes from wealthy individuals to pay off the T bills. These wealthy individuals have saved an enormous amount of money over the decades, in taxes that they didn’t have to pay because the Social Security program subsidized these tax cuts.
Alas, the payroll tax reduction extensions were not financed by raising taxes on the wealthy. They are being financed by assessing mortgage origination taxes, which will have the effect of putting yet another boot on the throat of the housing market.
– Larry Weisenthal/Huntington Beach CA
All our problems would be solved if we got rid of rich people.
/s
Hi Mere (#5): Nobody is against rich people. Least of all, me. What we are talking about here is basic decency, fairness, and, most of all, honesty.
Average Americans paid more in social security taxes to build up a nest egg for use when the Baby Boomer retirement crunch hit. They paid more taxes, bought a ton of T Bills, which financed tax cuts for those rich people. And now Average Americans just want to redeem those T Bills, the same way that the Koch brothers expect to redeem their T bills and the State of Texas wants to redeem its T Bills, but the Average Americans are being told “tough luck” by the likes of Warren Beatty, who claims that their T Bills are only a “myth.”
What on earth does this have to do with getting rid of rich people?
– Larry Weisenthal/Huntington Beach CA
According to Mark Levin the social security trust fund is a room full of iou’s. I believe Mark Levin.. in other words the trust fund is a mirage.
In Canada the old pension is in general revenue and the deduction for pension is another tax. The so called trust fund is another mirage.
By the way, when the government was going to shut down, social security was going to be paid from general revenue.
Hey Oil Guy,
No. Mark Levin is wrong. The Social Security Trust Fund is a room full of T Bills. The same T Bills which are held by the Province of Alberta in its “Sustainability Fund” and “Heritage Fund.”
http://www.finance.alberta.ca/
T Bills are, indeed, IOUs.
I say if the US Government is going to screw anybody by defaulting on its T Bill payouts, let’s screw Alberta. ****ing socialist Canucks. Screw ’em. Don’t screw hardworking average Americans, who saw their payroll taxes and self employment (Social Security) taxes raised in 1981, on the promise that this would be invested in T Bills for payout, down the road, when the Baby Boomers started to retire. Or else, let’s screw the Chinese. Let’s screw Goldman Sachs. Let’s screw the Koch Brothers.
No, let’s start out by screwing Alberta. See how that plays out.
– Larry W/HB
First of all, Mark Levin is right.. and *FINALLY* you figured it out enough to admit it. T-Bills are IOU’s.
But you see the cost of that T-bill/IOU is really not it’s face value. Because since Congress borrowed it to spend… and we’re spending more than we bring in… what they borrowed in T-bill value is really that much plus the accrued interest by letting Congress put their mitts on the piggy bank.
Cashing in those IOUs for the true value of the money seized ain’t gonna be possible at these yield rates…..
Simple math. Problem is, most people don’t like to include all the itemized costs to get to the bottom line because it’s oh so inconvenient to their partisan debate points.
Hi Mata,
Just tell me how Social Security’s T Bills are any different than Alberta’s T Bills or T-Bills held by the Texas State Pension system.
Let’s screw Texas, along with screwing Alberta. Tell Perry that his State doesn’t hold T Bills, but instead holds worthless IOUs. See what “conservative” Rick Perry has to say about that.
– Larry Weisenthal/Huntington Beach CA
@openid.aol.com/runnswim: You said, emphasis mine:
Slow learner much? Mata, among others has debunked this, yet you continue to spout it as if it were true.
It’s apparently been debunked to the satisfaction of those who don’t want to believe it. Everyone else sees the obvious: Tax cuts heavily weighted in favor of the wealthiest have been financed by expanding the national debt that belongs to everybody.
The national debt has expanded every time a new round of tax cuts has been rolled out.
Before the days when the patently goofy idea that “cutting taxes raises revenue” took hold, the national debt was a tiny fraction of what it has since become.
@Greggie : You are all over the place here. Your simple minded thought processes seem to want to combine tax cuts, over spending and debt/deficits as if they are all one thing.
You said:
First of all, cite some sources for your statement.
Secondly you are again combining two different issues.
If you make $5,000 a month and have $5,ooo a month in expenses, you have no monthly deficits and no cumulative debt. If you get a decrease in pay to $3,000 a month, then your deficit is $2,000. At the end of the year, all things staying the same, your debt is $24,000.
Any normal person would cut back on their expenses, so they could avoid deficit spending, but not our government, or even most governments as it turns out.
During the ’80s under Reagan, tax revenues greatly increased yet the debt increased. Your narrow minded worldview blames this on the across the board (meaning ALL income brackets) tax cuts; when in reality, the Congress just spent more than they had. I know that is a hard fact for you to digest, but it is true.
You said:
Here again, your penchant for combining apples and oranges greatly inhibits your ability to understand what you are talking about.
But before I take the time to go further, just cite some credible sources to back up your wildly inaccurate claims, please.
@Greggie: I tell you what, Greggie. Try and understand this analogy of our progressive tax system:
@Meremortal:
We are getting there, Meremortal.
How long can this last?
It has to collapse this country.
Sooner or later (or maybe never) the truth will dawn.
Social Security will be Social Welfare, a designated wealth-transfer program.
Tax those who have income, and distribute the proceeds to those who do not have income.
See? Spread the wealth around.
A staggering percentage of the Federal “budget” consists of redistribution programs. Money is taken from those with income and given to those without income. This is supposed to make everybody better. The income-earners are better off because they don’t need to worry about how to spend their money–the Government will spend it for them. The non-income earners are better off because the Government will house, feed, clothe and medicate them.
See how easy that is?
Of course the whole scheme is unstable and will collapse, as all previous Ponzi government schemes have collapsed. See any unbiased history book for details.
Meanwhile we just kick the can down the road and hope to put off payment to the next generation.
The Four Horsemen of the Apocalypse are, of course, the answer to all of this. It is just that the Horsemen leave behind such an appalling number of bodies!
@mathman, #17:
To begin with, the U.S. economy doesn’t produce as many jobs as there are people here who need them. Since we’re part of the global economy–like it or not–this situation is very unlikely to improve. There’s an endless supply of people outside the U.S. who will enthusiastically produce goods and services for a small fraction of the lowest weekly pay that’s required to meet basic living expenses inside the U.S., and there are corporations here that will enthusiastically facilitate moving U.S. production to wherever that cheap labor is, because they can make a lot of money by doing so.
In addition to that, there’s a large portion of the U.S. population that we don’t normally expect to be part of the labor force: those of advanced years, children, stay-at-home parents with young children, full-time students, the disabled, etc. Although the specific members of these non-employed groups change over time, the non-employed groups themselves are always present. They’re a permanent demographic feature.
Given those two facts, how could any large industrial nation like the United States get by without permanent mechanisms for the redistribution of a significant portion of the nation’s income and wealth to the support of those groups?
Do we really believe that the free market is somehow going to see to it that each American worker is paid enough to provide for all of his or her own current needs, to prepare for the inevitable time when he or she can no longer work, and to fully support his or her family while doing so?
Call it socialism, if you like. Whatever you call it, large-scale social programs involving redistribution of income and wealth are unavoidable. It’s a matter of practical necessity. There’s also a moral imperative involved.
“Let them eat cake” is not a response that tends to produce happy outcomes for those who put it forward.
What we should actually be discussing is not the necessity of social programs, but how to balance their demands with individual self-interests–a competing factor that also involves a moral imperative. We should be talking about the rational adjustments necessary to make social spending sustainable. That discussion necessarily involves both the topic of spending cuts, and the topic of tax increases.
We haven’t been an “industrial” nation for more than a few decades, Greg. Restrictive and cost prohibitive policies and regulations started shifting America’s industrial world to offshoring in the 70s. We are now a “retail” nation of shoppers.
When you have a nation of “shoppers” even redistribution of wealth… of which we are all aware you are one of it’s biggest supporters… there is still no way to sustain the masses. Most especially in the style in which our “poor” have become accustomed. Will they give up their cars, their iphones and computers? Their color TVs?
The US economy would produce more jobs, which would increase the consumer spending ability, if we again became an industrialized nation. And, in fact, in these times when our off shore supplies have their own fiscal problems, it’s foolhardy for this nation not to be able to sustain itself on the basics.. manufacturing, textiles, copper, lumber and steel.
Your solutions are somewhat back-arse-wards. You see the problem, and think that spreading around the declining cash is the answer… which actually does nothing but exacerbate the problem. A more business friendly environment must be nurtured, or this will be nothing but a nation of retain buying parasites, living off a few who are making less cash, and whining about losing their standard of living. One need only look at the Occupy movements to see how that works. Since they’ve been shut down in most major cities, they are flocking to Occupy DC. Now the organizers of those who do not work for a living are trying to figure out how to feed all the extra people, in line for the food handouts. They’re looking for more of those working types to up their handouts… How much would you like to give, Greg? I’m sure the Occupy sites will tell you where to redistribute your own cash.
Just don’t tell us how to spend ours.
Greg, Re: comment # 18, you say, “There’s a moral imperative involved.” I think everyone at FA would agree with you concerning people not expected in the workforce, but (and there’s always a “but”) it’s hard to accommodate a moral imperative for people who are physically able to be part of the labor force, but choose not to. You make a good case for capitalism.
BTW I supported my children while they were full time students.
And I really like anticsrock’s #15 comment.
all this sound interesting to be debated by all concerned about it, and there are many,
@MataHarley:
While manufacturing is not the largest part of the U.S. economy, we’re still an industrial giant.
The United States has the biggest national economy in the world, and as of 2009–the last year for which I could find data–could still claim the largest annual industrial output of any nation on the planet.
If we stopped exporting jobs to China to boost corporate profits, things might stay that way.
Manufacturing Output by Country
@Warren: Thanks Warren. 🙂
@ Greg:
The CEO of Coke said it was easier to do business in China than the US. This from an Obama supporter, not the TEA Party. He blames the massive tax code. When a company like GE has a 57000 page tax return, even the left must acknowledge that something is wrong.
By the way, I would love to hear you or Larry’s response the anticsrocks #15.
By the way antics, that was very nice.
Hi Aqua, I haven’t replied to anything because I really don’t have anything new to say. Mata and I have been going around and around for literally years. When a particular issue comes up, it’s worth maybe a single retread of an old argument, but, beyond that, it just wastes everyone’s time. There are too many of you with whom to argue every detail and Mata never gives so much as a picometer.
But you ask me a direct question, and I’d like to give you the courtesy of an answer.
This is illustrative of the adage that conservatives see things only in black and white. Antics gives an extreme example, because, one presumes, he favors a flat tax. If he didn’t favor a flat tax, he wouldn’t give the example he gave, he’d be engaging in a discussion about what degree of progressive taxation is appropriate.
If you believe in a flat tax, then I don’t have anything to offer, beyond what I’ve argued many times before…mainly that rich people should be taxed at higher rates, because they owe more to government for their success than do less rich people. I’ve pointed out that this is not just loonie lib socialist Marxist talk, it’s a concept shared by the likes of Adam Smith and especially championed by Theodore Roosevelt. But if you don’t buy the arguments, then that’s fine. It’s an issue which can’t be resolved, anymore than religious differences can be resolved.
I favor going back to the tax rates of the 90s, which means higher capital gains tax rates and a top marginal rate of 39.6%. These tax rates are far lower than the rates of the 50s, and 60s, and 70s, when we grew our economy and paid off our WWII debt, while financing the interstate highway system, Apollo moon program, war on cancer, Great Society, Vietnam War, and so on. I don’t believe that going back to the tax rates of the 90s has anything at all to do with the example given by Antics and I don’t believe it’s class warfare.
It would be fruitful to have a discussion based around exactly how progressive the tax system should be. I don’t see any point in continuing to hammer each other over the basic concept of a flat tax vs a progressive tax.
– Larry Weisenthal/Huntington Beach CA
“… conservatives see things only in black and white?”
“…extreme example??”
This is what you took away from anticsrock’s reprint of the infamous humorous essay of How Taxes Work? Would you be interested in knowing that it’s been used by economics professors as a way to get students to think out of the box in their understanding?
While no one seems to know who penned the original version of this parable, as you’ll see in the Snopes link above about it, no one erroneously attributed with authorship over it’s years of distribution disputes it’s portrayal of a progressive tax system as inaccurate. It’s just a simple way of illustrating how each tax bracket tends to eye the situation, and decide if they are the ones getting screwed. And it’s a perfect example of the bottom up blame and class warfare that we see in the streets at every Occupy and Infest camp out.
As far as this being because you believe anticsrocks is a closet flat tax’er… nope. Anticsrocks penned a reader’s post this past summer, The Evil Rich and Their “Fair Share”. I’d say were he a flat tax’er, that would have been the ideal moment for him to confess.
But that’s not what his post was about. It was focused on the despicable talking point that the rich don’t pay their fair share, inciting citizen on citizen anger and envy…. again as the parable states, and is borne out by the Occupy movement as very real. As anticsrocks pointed out, the US’s top 10% richest have the highest financial burden of both personal and payroll taxes combined than any other country’s top 10%.
To quote from his post:
I agree. This is primarily a spending problem, and when that is reigned in, we can then address IRS reform. To do it the other way around is a promise that spending will never be curtailed. History has shown us that the 30 some odd Dem controlled Congressional sessions, along with the few GOP controlled Congressional sessions, all results in the same end…. more and more spending. Just sometimes more under one party than the other.
This one has taken the prize for the mother lode of spending-without-results.
There are times where the masses can better afford a tax increase than others, Larry. You so yearn for the Clinton years in many ways… and often say you want those tax rates. But during the Clinton bubble years, under that detested and evil Newt Gingrich/GOP majority Congress, bubble earnings were tapped and lifestyles and GDP/business growth were not significantly affected.
This isn’t the same economy.
The dot com bubble burst a decade ago, housing bubble culminated/burst three years ago… tho they are business working on yet other bubbles to play with. Congress, Obama and Bernanke and spent, tickled, “stimulated” and played with our money supply and prime rates, only to see almost stagnant GDP growth, a shrinking labor force (which sure looks good on paper), and lots more debt/interest to show.
Creaming more cash off the top of the top % earners is a short lived proposition. They aren’t growing and investing because the consumer spending demand is dwindling, and the tax/regulation structure on the horizon causes more worry than confidence for businesses. Projected high energy costs, promises (as need be) for increased prime rates and reduced demand for supply does not make for a rosy recovery picture.
So while we’re playing the parable game, one of my own. If the silage grains in the silo are low, no rain on the horizon and your pastures bare… and you want the milk cow to continue yielding milk… you don’t give away even more from the silo. Now if the silo were full, and the pasture overflowing with nutrient rich alfalfa as a supplemental for their silage diet, that silo has a better chance of being tapped without the milk supply drying up.
In short… really the kiss of death to raise taxes right now. Even worse to give pathetically small “tax holidays”, and make a fuss over it. This payroll tax showboating is really on my nerves.
This will do virtually nothing substantial but help keep the leaking dinghy from taking on as much water over the next year. And I don’t see where in the CBO analyses of the various bills that spending cuts are sufficient enough to accommodate for the money shell game, and interest piled on (i.e. replacing the tax holiday money with cash “borrowed with interest” from the general revenue, then buying it back with IOUs/T-Bills so that Congress can spend it again… entailing yet more interest/borrowing.
I say let it expire and do some genuine reform instead of playing the money shell game.
Hi Mata,
I presume, from your post, that you believe that taxes should be progressive. So the only thing we are arguing about is how progressive they ought to be. So the “parable” is just a straw man. It’s an extreme example; it’s not relevant to the issue of whether or not tax rates should go back to where they were in the 1990s or 1970s or 1960s or 1950s or whether they should stay the same or whether they should be cut further.
I think that tax rates should go back to where they were in the 1990s. You don’t agree. So I don’t see the point in carrying this any further. We’ve both had the opportunity to make our respective points.
– Larry Weisenthal/Huntington Beach CA
@Aqua: Thank you, Aqua! 🙂
Thanks for the kind words, Mata. You are right, for what type of tax system we have or switch to matters little if we don’t first control spending. And Mata, you are also correct as to why I posted the beer tax parable. I wanted to illustrate just how the class warfare plays out in the real world.
BTW Larry, if I’m not mistaken Clinton lowered the Cap Gains taxes when he was in office.