February 16 2012
Payroll Tax Déjà Vu
Nicole Kurokawa Neily
Yet here we are again, a scant two months later, having the same discussion again. Hmmm… wasn’t Groundhog Day two weeks ago?
The facts remain the same – a temporary extension (in this case, 10 months, compared to the two month extension we got in December) that doesn’t give businesses the regulatory certainty they need to make long-term business decisions.
What’s interesting about this round of negotiations, however, is that the debate was far less acrimonious – both sides wanted the extension, and were willing to make significant concessions to do so. Why is that?
Republicans seemed to determine that it was easier (and, ahem, more politically expedient) to cave than to explain the underlying economic principle – or to push for Americans to have the option of putting this temporary $40 per paycheck into personal retirement accounts (for a full explanation of why this would be a better option, click here). In other words… cowardice.
Democrats, on the other hand, may get a brief political bump – however, as they’ve claimed for so long that they’re the party that will preserve Social Security (and this move actually undermines the program’s funding), it might blow up in their face. Is there something else going on?
Consider what happens every year when the Social Security Trustees Report comes out… or when the budget does, like this week. Dire predictions of the specific year that the government stops being able to pay out full benefits (2036, in case you’re wondering) are terrifying for the American people – and embarrassing for politicians. Wouldn’t it be so much EASIER for Democrats if we could just circumvent this nasty little exercise?
If the nation were to drop the charade of Social Security as a separate entity – eliminating specific taxes and the illusion of a “lockbox,” the government would be able to instead directly fund the program through the traditional budget process. Accordingly, when (not “if”) Social Security runs out of money, the government’s hand is strengthened when it comes to raising taxes – permanently.
Social Security needs to be phased out – but into a private system, not a fully government-funded one. The payroll tax cut fight might seem like a small fight, but it’s a proxy battle in the larger battle over the size and scope of government. Let’s hope our elected officials keep that in mind when they have this discussion again at the end of the year.