Americans should be used to the high political drama coming out of Washington. Oh, there are the stories of marital infidelities, disappearing Congressional aides, toe-tapping senators and the like. Then there are the great debates where both sides of an issue scrap and claw their way to political pay dirt. Healthcare reform and the recent battles on raising the debt ceiling come to mind. Funny how things always come together at the 11th hour?
Currently on the docket is the payroll tax cut extension. Passed in 2011, the payroll tax cut reduced a taxpayer’s contribution toward Social Security from 6.2 percent to 4.2 percent. The goal of the legislation was to put more money in taxpayers’ hands in order to stimulate the economy. The measure expires on December 31, 2011.
Now, the drama comes in because the Democratic controlled Senate approved a two month extension to the measure while the Republican controlled House rejected the Senate plan in favor of a one year extension. Democrats are bent on their bill and Republicans on theirs, with time quickly running out. If an extension is not approved by December 31, 148 million Americans will see their taxes go up. At least that is the story coming out of the White House.
In the first place, the name of the measure is a bit of a misnomer intended, I am sure, to confuse many taxpayers. The payroll tax cut is not a cut to a worker’s income tax amount. It is a reduction in the amount that workers pay into the so-called Social Security Trust Fund. In other words, it is akin to paying less on a retirement annuity each month but still maintaining eligibility for full retirement benefits under the original policy. An annuity holder would never expect this allowance. For the life of me, I can’t understand how the average taxpayer would, unless they have been confused.
Secondly, the propaganda pundits on the MSM are claiming that if the tax cut is not extended it will potentially push the U.S. economy into a recession. Of course, that is the knee-jerk reaction of all Keynesians when it comes to government intervention in the economy. They believe in the more, the better, with no regard for tomorrow since in the long run we are all dead.
Article comments
— go to most recent comments1 - Glenn Contrarian
Tax cuts for the rich? No problem, conservatives are all for it!
Tax cuts for the middle class? "We can't afford it!!!!!"
Such incredible hypocrisy....
2 - Kenn Jacobine
If you read the piece Glenn I am saying it is stupid policy to cut funding for a program that is not going anywhere and is trillions of dollars in debt. Where is the money going to come from? Oh, I forgot statist like you will tap your friends over at the Fed to print more. It will cause a lot of price inflation but the poor will never figure that out. You can blame that on the instability capitalism.
3 - Anarcissie
All money is credit. It's a token which people believe can be exchanged at some time in the future for something they want, even if it's only to pay their taxes. Anyone (a person, corporation or government) can print all the money it likes without causing inflation as long as it can eventually back up the money with other valued items. In the case of the payroll tax money, if its circulation among the people leads to valuable economic activity, even if it's only burger-flipping (which seems to be highly valued by some) then it's reasonable to 'print' it and let it circulate. It will eventually be absorbed into the huge virtual piles the rich have accumulated and will effectively disappear. But that's a different problem which will exist whether or not we deprive the poor of money.
4 - Igor
The easy thing to do (and the right one) would have been to lapse the Bush tax cuts (the gift to the rich that just keeps on giving). Then we would not have all these financial problems. We could even pay for those glory wars we started in Iraq and Afghanistan.
But the republicans have clearly stated that their entire political strategy is to destroy this president (which one would think would call their patriotism and loyalty to the USA into question, but no one seems to care) so they have adopted rule-or-ruin techniques into play in the House of Representatives, where they have some degree of control. So they've just become the "NO!" party.
Incidentally, Mr. Anti-Keynes, the current financial collapse illustrates the wisdom of Keynes counter-cyclical policies: when we were flush in 2001 we should have banked the money for a rainy day, not gone on a big spree, like some drunken little rich boy who just found a wad of money in Mom's purse.
5 - Clavos
But the republicans have clearly stated that their entire political strategy is to destroy this president...
With any luck, they'll succeed too.
which one would think would call their patriotism and loyalty to the USA into question, but no one seems to care...
Patriotism and love of country are exactly what inspire the opposition to do what they can to bring this disaster of a president down before it's too late.
6 - Dr Dreadful
Patriotism and love of country are exactly what inspire the opposition to do what they can
Ummm... no.
Too many of the current congressional GOP's actions don't fit that template.
I think you just had a cynicism failure, Clav...
7 - Clavos
What can I say Doc? The ghost of Christmas past must have overwhelmed my caution.
Naah. Must have been what I ate for dinner...
8 - Baronius
You could argue that the payroll tax cut is Keynesian (deficit=stimulus). You could argue that it's supply-side (lower tax rates=stimulus). The one thing anyone should be able to agree on is that it's irresponsible. It's killing the goose that lays, not the golden egg, but the only egg we have. It's stealing from the one significant government plan that's close to being well-funded. Killing your egg-bearing goose is something you only do when you're facing death by starvation.
If you want to stimulate the economy like this (and I don't think you can anyway), you make an equivalent rate cut to the income tax. You do not raid the Social Security trust fund for a cheap economic high or a cheap political boost. Any Democrat or Republican politician who supports this has, at best, lost sight of the big picture.
9 - Igor
The only reason for employing the SS tax to fight the recession is because the republicans (in their unending irrational hatred for Obama, as illustrated by Clavos in #5, above) have opposed every other attempt. Indeed, one must conclude that the republican rule-or-ruin strategy for regaining power has brought them to the point where they are quite willing to destroy the USA so that they can rebuild the country in their dream image.
But beware: the radical rightist dream of the republican plan will be a nightmare for 99% of Americans, who will be pressed down into abject poverty and peasantry, while a very few will be able to establish dynasties. Of course, this will all be justified by the usual calvinistic/puritan deceptions about those who are in poverty and misery because they DESERVE it, and those who ride high DESERVE it (for some reason, even if it's only by being born into the Bush family).
Withal, the fact remains: the history of the past 10 years has shown the corruption of the Austrian school and the affirmation of Keynes: go choke on that, Clavos (heaven forfend you should actually take a college Econ course, instead of tediously parroting unsubstantiated propaganda from radical rightist trash literature).
10 - roger nowosielski
I think Baronius is right, Igor, in that it's a strictly intermediary measure and the main reason is political -- to demonstrate to the people at large that the Chief Executive and the Democratic party care. And for the very same reason, and no other, the Republicans had to go along with it, having their eye on 2012.
Eventually, the funds that are being raided right now will have to be replenished. How and from whence is the question.
Just another example of political posturing, but that's just my opinion.
11 - Kenn Jacobine
Igor, how much "stimulus" has to be injected into the economy before you acknowledge that Keynesian schemes do not work?
12 - Igor
I can't see that Baronius has said anything that can be called right (correct, that is).
The amount of money borrowed from the SS Fund is small, and is easily replenished upon resumption of a normal economy. SS income produced surpluses every year until in Bush's 5th year it produced it's first yearend deficit (further testimony to the corruption of Bush's supply-side economics).
The republicans created a crisis with their misbegotten economic actions (putting two trillion dollar wars on the cuff and handing out expensive gifts to their rich friends), and then they compounded the problem by barring proper recovery with their rule-or-ruin politically motivated obstructionism.
There's no secret about this, is there?
The republicans are committed to destroying Obama, even if that means destroying the US economy in the process.
How can any loyal American support such a policy?
13 - roger nowosielski
The "normal economy" will not be resumed, Igor. It's a pie in the sky.
If you haven't faced it yet, now is the time.
14 - roger nowosielski
And it's not the Republicans who have created this condition, though they certainly didn't help. It's the capitalist system running amok and coming to its eventual end.
It was in the cards.
15 - Glenn Contrarian
Roger -
We could resume the 'normal economy'...if and ONLY if Americans were willing to (1) pay the taxes necessary to bring the economy back to good health, and (2) pass the regulations (and enforce those regulations) necessary to level the business playing field and minimize the "socialization of risk" (since the current philosophy is "privatize profits and socialize risks")
But America's not willing to do that anymore. We've forgotten the fiscal lessons we learned in the 1950's, that high taxes - when wisely used - are NOT at all a waste, but can lead to a great expansion of the overall economy. But now, it's "ask not what your country can do for you, and don't give your country one damn dime to do anything at all".
Hence my most recent article. We, as a society, are choosing to fail.
16 - El Bicho
"Patriotism and love of country are exactly what inspire the opposition to do what they can to bring this disaster of a president down before it's too late."
When do you get into the fertilizer business?
17 - Igor
Kenn can't even compose an articulate question. Look at this:
"11 - Kenn Jacobine
Igor, how much "stimulus" has to be injected into the economy before you acknowledge that Keynesian schemes do not work?"
A meaningless question, since there is no stated standard by which one may judge success or failure.
One must therefore assume that he means something like this:
"Igor, how much "stimulus" has to be injected into the economy without improving unemployment before you acknowledge that Keynesian schemes do not work?"
That's easy because the CBO scored the ARRA as saving 2million jobs. And most economists said the stimulus should have been twice as big.
And I'll add to that the business tax break portion (about 50%) should be radically reduced because it is poor at improving the economy (NO businessman, presented with a windfall, is going to hire people just because of that - he needs SALES to justify investment. And that is why US industry is way over capacity and sitting on $2.5trillion of dormant capital.). But money in the hands of ordinary consumers has an economic multiplier of 2.8 (per the CBO report), meaning that there is almost $3 of economic activity for every dollar spent.
18 - Glenn Contrarian
Kenn -
Perhaps you're independently wealthy and will not need your Social Security when you're old. But if you're not, you just might find out first-hand why America's elderly really have a problem with the idea of getting rid of Social Security...and why most Americans who remembered what life was like before the New Deal really liked it.
But now? You've got a leading presidential candidate who thinks that there's nothing wrong with child labor. Yeah, that's the REAL path to prosperity, isn't it? Let's give our elderly and our kids the kind of lives they could expect in a third-world nation, and America's economy will get BETTER!
19 - Kenn Jacobine
Glenn, you continue to exhibit reading comprehension problems. Again, it is a something for nothing proposition to rob revenues from s.s. for short term gain. The system is in dire straits and this scheme which will not benefit the economy anyway is going to make s.s. even more insolvent.
BTW I am anything but independently wealthy. I will not receive much s.s because I haven't paid into it in 11 years. It was yet another benefit of teaching abroad not having to pay into that Ponzi Scheme. Given the recent action of Congress it makes it even less likely that s.s. will be around when I retire anyway.
As to child labor, parents have the right to determine what is in the best interests of their children. If you say some can't handle that responsibility, I agree. But there are dozens of examples where some parents aren't responsible about their children. Are you going to confiscate every child or lock up every parent in that situation?
There is nothing wrong with child labor Glenn. I worked from the time I was 15.
20 - Glenn Contrarian
Kenn -
1 - S.S. would not be in dire straits at all if everyone paid an equal share of their incomes into it...but they don't, since it only applies to the first $106K of income, and any income after that is not touched. You know this already, but you're so hidebound by the rhetoric that you can't see what's wrong with it.
2 - Again, I hope you do become wealthy enough that you won't need it when you get old...but millions of elderly Americans have ZERO other options. You're an historian, Kenn, so you probably know that when S.S. was first implemented, half of ALL elderly lived in poverty...but that was at a time when elderly normally had big families around to care for them.
But now there are millions of elderly whose kids can't (or won't) take care of them in their old age (or who have no kids at all) - and if you had your way, they'd have no steady source of income when they're no longer able to work, too! Tell me, Kenn - what are those elderly supposed to do? Beg? Is that your solution for the 70- and 80-somethings who would have zero income except for S.S.?
3 - When it come to child labor, Kenn, even in the most prosperous nations there's always kids who don't have a choice, or who are simply driven by their own nature to work. You KNOW this. The difference, Kenn, is that what you're advocating is to make child labor the norm rather than the exception to the rule...
...and you've been in enough third-world nations to know that there's a significant percentage of parents who would force their kids to work for a few coins rather than ensuring they go to school, and you KNOW what that does to a society, how it perpetuates the lowest classes and the crime and corruption therein.
Kenn, all one has to do is to look at what the first-world nations do, and at what third-world nations do. If you want to live in a first-world nation, then live in a nation that does NOT do what third-world nations do. If you want pure capitalism, including low taxes, little or no regulation, and small government, and if you want to totally reject the idea of social safety nets, then go live in a third-world nation!
And then you can finally say how free you are as you drive down the streets, blissfully ignorant of (or studiously ignoring) the grinding poverty of those lining the streets on either side.
21 - Igor
SS is an excellent system that is better financed than your auto insurance or even your life insurance. Just ask your insurance agent if their policies are fully funded with cash. No, they are NOT. ALL insurance policy claims in the future will be paid by then current income.
SS is an insurance policy and an annuity (and a tontine), and it is FAR BETTER financed than ANY life insurance policy you can buy from an insurance company. Even if payments ceased it could pay for decades. You CANNOT buy an insurance policy that well funded.
SS has a $2.7trillion surplus accumulated over many years. Most insurance policies have paper-thin pre-funding. Ask your auto insurance, house insurance or life insurance company what the size is of their pre-funding.
Kenn is a liar, who perpetuates the lies about SS. The idea is to discourage ordinary people from expecting anything so that they won't be upset when Kenn and his crooked friends want to steal the SS fund to put the money in their own pockets.
Our entire financial system is based on Fractional Reserve banking, which the ardent rightist have eagerly implemented over the years because it increases apparent money flow and they extract commissions and brokers fees on all that money flow.
It's called LEVERAGE.
That's why there can be $650trillion of paper in the USA based on only $45trillion of total net asset value (intrinsic value) in all the US capital. Of course, that 15 to one leverage exceeds the 10:1 that was considered safe when we came out of the Great Depression, but Big Business got what it wanted, as usual.
But the SS fund is probably the soundest financial system in the USA (and the world).
22 - roger nowosielski
#20
Why should SS be taxed beyond certain limits? There's no justification for that, especially since Federal taxes ought to pick up the slack.
A far more reasonable approach would be to apply the means test and adjust SS benefits to those who meet it.
Let's not get carried away here with good intentions and liberal ideology just because we happen to be a welfare state.
23 - Clavos
No one able to support themselves in retirement should be able to draw SS.
24 - Christopher Rose
Completely agree there, Clavos.
I'd go further and get rid of the retirement age and state pensions entirely too.
25 - roger nowosielski
Kind of drastic, don't you think, Chris?
Pension is a civilized notion. Why do away with it entirely?