With the unemployment rate stuck above 9%, Pres. Obama and everyone else in Washington are coming up with anything they can to boost job creation. One idea proposed in Obama’s jobs speech a week ago? Hack payroll taxes (e.g. the ones that fund Social Security) in half. This time the cuts would cover both the employee and employer portion of the take.
On one level I think this is a great idea. It would mean a lot of extra cash to me personally because, as a self-employed person, I pay both the employer and employee part of FICA taxes on my eligible income (the whole 15.3%, rather than the 7.65% most people think they are paying even though they’re really paying the whole deal since it’s all part of the cost to employ a person). I like the idea of getting a tax cut multiple times.
But as pointed out in this Reuters article, one cannot simply hack the source of revenue for a major program without eventually having to deal with the program itself. Allegedly, the cuts will be temporary. But while it will be one thing to cut taxes, raising them again, from the hacked in half new level, will basically mean doubling them. If the economy were growing like gang busters, people might tolerate that, but the truth of the matter is that temporary tax cuts aren’t necessarily known for completely changing the game. As a business owner, you don’t think “oh, taxes will rise a lot in 2013, but it will never be 2013!” and then go out and hire 30 people you wouldn’t have otherwise hired. We’re kind of splitting the baby here. The tax cuts may be permanent, but we’re not getting the benefit of telling people they’re permanent.
So what is going on? I would personally like to find out that this is a back-door way of starting a discussion on massively scaling down Social Security. Regardless of what Roosevelt told people, it is just a tax like any other, and the checks the SSA cuts are just income transfers like any other. I’ve written quite a bit about trying to wind it down — once in a debate with Robert Reich in USA Today in which I advocated forcing young people to pay into it for another 10-15 years without seeing a penny. I mean, if most of us don’t think it will be there anyway, why not? Ending a Ponzi scheme (oh, Rick Perry! did you say that?) always requires that someone pay in while getting nothing in return. That’s the only way to atone for having given some original folks something for nothing, as Roosevelt did with his first set of retirees. Starving the program of funds and making it nearly impossible to raise them again (given that it will mean doubling the tax rate on people earning even small amounts) is one approach.
But it’s a pretty sneaky approach, based on the cynical idea that voters are not adult enough to handle the idea that you cannot have both low taxes and a government cutting checks to everyone over age 65 (or 62 in many cases). I understand that many government officials do believe this, and have good reason to. I’ve been reading former Mich. Gov. Jennifer Granholm’s A Governor’s Story, and she points to her polling data and focus groups which found that Michigan voters hated the idea of raising taxes, but also hated the idea of any particular budget cut. Didn’t matter whether it was to education, parks, health care, police, anything else. Apparently voters thought she could balance the budget when revenue was plummeting (due to disappearing manufacturing jobs) solely by cutting waste, fraud and abuse. I hear unicorns are fun to ride too.
The temptation is to be opaque when you are facing transparently silly beliefs. In the long run, however, we’re probably better off tackling these issues head on as we discuss what people want the government to do and not do and how on earth we plan to pay for it all. Social Security will not long survive in its current form with half its current revenue. I’m OK with that, but we should probably figure out who else is.