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Wednesday, 30 November 2011

Payroll Tax Cut Ambivalence

category_bug_politics.gif It tells you a lot about our corrupt politics that when Congress passed the payroll tax holiday in December 2010 in the same package as the extension of the Bush era tax cuts primarily benefiting the wealthy, the former was for a period of one year and the latter for two years.

So the rich folks are secure in their tax cuts for another year. But now that Congress has returned to Washington following the Thanksgiving recess, the payroll tax holiday that benefits the middle and working classes must be renewed by the end of December or return, in January paychecks, to the full 6.2 percent Social Security withholding - up by a third from the 4.2 percent in force during 2011.

On Monday, with President Barack Obama's imprimatur, Senate Democrats introduced a bill not only to extend the payroll tax holiday through 2012; it would also increase the cut to 3.1 percent or half the full deduction of 6.2 percent.

But wait, there's more.

This new bill would also reduce the employer half of the payroll tax on the first $5 million of taxable payroll to the same 3.1 percent as employees.

The bill proposes to pay for the tax holiday with a 3.25 percent tax on gross income above the first $1 million. I don't need to tell you how Republicans feel about a tax hike, any tax hike, on rich people.

In case you are wondering, Social Security is held harmless from lost revenue in this tax holiday as the money not collected and therefore lost ($67.2 billion in 2011) is recouped from the federal government's general fund.

And that's where I get ambivalent about this.

What bothers me is that until this tax holiday, Social Security funds have always been held in an account separate from the general fund. They still are. But now, with the shortfall due to the tax holiday being replenished via the general fund, that wall between the two has been breached and I don't find it hard to imagine/believe that Congress – Republicans in particular – would just refuse to reimburse Social Security in whole or in part.

This, obviously, would put Social Security at great risk for further attack from the political right.

More than at any time since Social Security's inception, it is a crucial factor for retirement. Real wages have not increased for more than a decade and will not do so any time soon.

Additionally, workers collectively lost trillions of dollars from retirement accounts in the 2008 crash, millions more have disappeared as home are foreclosed upon or drastically reduced in value and many unemployed will never recoup either their careers or salaries.

For more people than ever before, Social Security is crucial to workers' old age and it should not be put at risk by making it easy for politicians, many of whom have tried to kill the program for decades, to raid it.

President Obama supports continuation of the “tax holiday” and will be speaking in support of its extension and expansion in Scranton, Pennsylvania today.

Congressional Republicans at first rejected renewal of the cut, but are now mostly supporting it except for the part about taxing incomes larger than $1 million. (What else is new.)

Senate leader Harry Reid may bring the bill to the floor for a vote by Friday.

It is damned difficult in this horrid economy with a real unemployment rate above 16 percent, to argue against an additional $1500/year that the proposed 2012 holiday would provide an average family, up from an average of $1,000 in 2011.

But with each payroll holiday, each increase in it, each extension and each time the reimbursement is coupled to the general fund, Social Security is at greater and growing risk.


At The Elder Storytelling Place today, Johna Ferguson: Visitors


Posted by Ronni Bennett at 05:30 AM | Permalink | Email this post

Comments

I'm ambivalent about your ambivalence. The tax holiday clearly has some near-term benefits for working people, but it's yet another short-term fix for the long-term problem of Social Security shortfalls and the strangling of the middle class.

I agree with Tom. And furthermore, I am heartsick that this is President Obama's "solution" to assist the middle class. They'll get screwed when it comes time to collect their Social Security. These extensions exacerbate the problem. And thank you Ronni, for a clear explanation of the problem that I intend to share with many. Dee

Oh dear. In my haste I meant to say: I'd share your explanation....not the problem. Hope that makes better sense. Dee

The sad part is that I have no confidence that anyone in Congress, or the President, can be counted on to do the right thing for the common people of America. Both parties are full of self-interested con artists.

I didn't used to feel this way. I always thought we had champions looking out for us.

I guess the OWC protesters (and voters) haven't made their positions clear to the politicians. It just continues to be depressing as the battle for justice is never ending.

Ambivalence isn't strong enough to describe my feelings. What's going on is pure sabotage of the Social Security system. It will be almost impossible to restore the proper level of payroll taxes to support Social Security if the reduction stays in place for yet another year.

The proper way to ensure sound financing for Social Security in the future is to let the payroll tax reduction expire and remove the $106,000 ceiling on contributions.

Is it any wonder the Republicans have agreed to extend the payroll tax reduction? It plays right into the hands of radicals on the right who want to abolish Social Security altogether.

I am torn on this one too. I know how tough it is for young people to pay the bills; but also don't like separating the payroll tax from the pension plan. We know the Republicans just want to destroy SS and anything that makes it easier for them to confuse voters will help them do that. As Gabby Geezer said, there are other ways to both secure it and give the workers a break and if they did end the cap and lowered the tax rate, it would accomplish that but keep it where it is.

Since I am 54 not the magical 55 I feel that Social security will be totally destroyed before I get there. I say that because all "changes" are for those under 55.

"Recouped from the general tax fund." Duh. There isn't any money in the general tax fund.

If young people think it's tough paying their bills now, wait until this bad bird comes home to roost (when today's young grow old) and Social Security is a welfare program that Congress can cut at whim. No ambivalence here: End the tax holiday. Don't even think about extending it to employers. This whole idea, which is a stealth cut to the nation's most popular social program, is only hurting us in the long run.

I have no problem with this payroll tax reduction staying in place PROVIDED it passes with the 3.5% surtax on incomes in excess of $1 million.

This surtax removes the current operation of replenishing the trust fund of revenue with general fund money, a bugaboo that the right likes to use to show how SS is a drain on the deficit.

The GOP could be shooting themselves in the foot by opposing this because this extension aids small business owners by lowering their share, as you mentioned, AND eliminating the payroll tax altogether for any NEW HIRES that companies bring on board - a real job creator move, IMO.

Mike Tomasky with the Daily beast had a great piece on this.

GOP Is Set to Self-Destruct Over Payroll Tax

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