Wednesday, December 08, 2010

Harming Social Security

Get with the program, Michelle! Think Progress caught the very conservative, tea party favoritie Michelle Bachmann (R-MN) saying

[W]e’re pleased to see that we’re looking at a two percent reduction in the payroll tax, what we normally call the Social Security tax for employees. … What this will mean is a decrease in revenue for the Social Security Trust Fund. That will, again, add to the deficit going forward. So both of these measures that President Obama is proposing will actually have a cost towards increasing the deficit.

Bachmann does realize that reduction of the 6.2 percent Social Security payroll tax for one year will create "a decrease in revenue for the Social Security Trust Fund." But what she does not understand- or does not seem to understand- is that Social Security has nothing to do with the deficit. It has its own, dedicated source of funding- that "trust fund" of which she speaks. (Suggesting, obviously, that she is well aware that Social Security does not "add to the deficit.")

But it will lead to a decrease in revenue for the Social Security Trust Fund, as Bachmann maintains. As the Obama-GOP tax negotiations were unfolding, Nancy Altman of Social Security Works understood that

Sixty members of the Senate are unwilling to raise taxes by 3 percent on the $250,000 and first dollar (and all those dollars earned above $250.001) of those making over $250,000 and by 1.6 percent more (for a total of 4.6 percent) on the $384,860 and first dollar {and all those dollars earned above $384,861) of those making over $384,860. They are even unwilling to spare everyone making less that one million dollars any increased taxes and simply raise taxes by 4.6 percent on the $1 million and first dollar (and all those dollars earned above $1,000,001 of the nation’s multimillionaires and billionaires. (I say multimillionaires because anyone with a net worth of a few million dollars is not making an annual income of over one million dollars.)

Given that unwillingness to raise taxes by less than a nickel on every dollar earned over $1 million, I find it unfathomable that a more conservative Congress, in two years, in an election year, will increase the payroll tax by 2 percent on the very first dollar, and every other dollar up to the cap, earned by virtually every single worker in the country. Consequently, I think we have to assume that the payroll tax holiday will be extended beyond the two years the president is proposing and quite likely could become permanent.

That means that the federal government will have to continue to transfer $120 billion to the Social Security trust funds each and every year even as it has to transfer more and more interest payments as the trust funds continue to grow and as interest rates return to more normal levels. Unless Congress acts to restore Social Security to solvency, the Treasury bonds held in trust will have to be redeemed, again on top of that new $120 billion transfer from the general fund, starting fifteen years from now, assuming Congress even continues to make the $120 billion every year before that point. These dollars will be competing with dollars for defense, environmental protection, education, school lunches, Food Stamps, Medicare, Medicaid, SSI, Pell grants for low income college students, and every other good and service financed by the federal government.

A permanent two percent cut in Social Security contributions doubles the 75 year projected shortfall. Scrapping the cap (eliminating the $106,800 maximum on earnings), totally eliminates the shortfall today. If FICA is cut by 2 percent, scrapping the cap gets Social Security only halfway there.

Reduction in the payroll tax by 2% (really, roughly a 30% cut from 6.2% to 4.2%) will have a major impact on the solvency of the Trust Fund (and thus on the elderly, graph, from, below) and is unlikely to be temporary. Already, three Republican Senators- Nebraska's Mike Johanns, Ohio's George Voinovich, and Tennessee's Bob Corker- have acknowledged that it's highly unlikely that this hit to Social Security will be reversed, Corker noted "a year from now, when it expires, it'll be portrayed as a tax increase."

This is how we got here in the first place- and not only with the income tax.

The Bush-era tax cuts on middle and upper incomes were to have expired, by law, at midnight on January 1, 2011. With a Democratic House, a Democratic Senate, and a Democratic President (technically), all the cuts are poised to be reinstated. Democrats will be reluctant to return to a higher rate a tax which is regressive and Republicans will not vote to let a rate cut retire or, as they will characterize it, increase taxes.

The estate tax cut also was "sunsetted," as explained on in 2006:

Prior to President Bush's 2001 tax cuts, the estate tax levied a 55% maximum tax rate on all inherited assets above a $1 million exemption - including business assets passed on by a founder. Bush's cuts set into motion a gradual phase-out of the estate tax; the exemption level has risen and the tax rate has been dropping since 2001, down to a planned 45% rate in 2009 with a $3.5 million exemption. Current law calls for the tax to be repealed for one year in 2010, but without congressional action to either reform the estate tax or make the tax cuts permanent, it will revert back to 2001 levels in 2011.

Barack Obama to the rescue! Under terms of the agreement, the first $3.5 million of a deceased person's estate will be exempt from taxation with a 35% tax on the value above that figure. Such favorable treatment of ginormous estates will not be revoked by a future Congress, likely to be even more favorable to the wealthy. Paradoxically, the cry will go out: Social Security is full of I.O.U.s! Social Security is in crisis! Social Security is broke! The Trust Fund is a fraud!

In one post describing the Obama/GOP sellout of the middle class, Digby concludes, disturbingly

The 2012 election is looking like its going to be about taxes and deficits (as a proxy for fixing the economy, since everything else is off the table.) And from what I can see, the president is going to be competing with the Republicans on who will lower both of them the most. Social Security is in maximum danger in that environment.


No comments:

Shedding Tears Over the Death of Orenthal James Simpson

Orenthal James Simpson has died, and he leaves behind an impressive, in a manner of speaking, record of misbehavior. In 1964, Simpson as a...