Spreading the Wealth Around, Tax Cut Edition
Americans are getting an election-year tax present. Congress voted with rare speed and cooperation Friday to extend a Social Security payroll tax cut for 160 million workers and to renew unemployment benefits for millions more who haven't seen a paycheck in six months.
This is how the Associated Press reports news of today's shining bipartisan moment in Washington. We also learn the following:
Taxpayers have grown accustomed to the 2 percentage point cut in the payroll tax over the past year — around $80 a month for someone earning $50,000 a year — and the reduction now will be continued.
Thus begins the unravelling of the moral justification for the Federal Insurance Contributions Act (FICA) which, in a nutshell, is that payroll taxes are nothing more than mandatory contributions to one's own pension and retirement medical insurance.
Congress has now reversed the otherwise steady escalation of the combined employer and employee FICA levy by 2 percentage points. However, Social Security benefits remain unchanged, growing automatically as scheduled. Obama's election-year largesse therefore drains revenues from the Social Security "trust fund," meaning that the Treasury will borrow more money to make up the difference -- another $111 billion this year--which will be paid someday, assuming the Republic survives, out of general revenues, largely income tax.
And who do you think pays the lion's share of income tax?
The FICA tax is "regressive": The pre-Obama 15.3% rate is paid on wages from dollar one, but the 12.4% Social Security portion ends once the earnings cap is reached (currently $106,800). Medicare's 2.9% share applies to all wage earnings (no cap, thanks to President Clinton's 1993 tax increase). Meanwhile, the United States has the world's most steeply progressive income tax, with nearly three-fourths paid by the top 10% of income earners.
And if there's one thing Progressives love it's progressive taxation.
This state of affairs--funding one's own retirement--is of course morally objectionable in the Age of Obama (almost as bad as the Dickensian hell of being forced to pay for one's own condom or birth control pill). Why should anyone "contribute" to his "account" what in 2010 was regarded as his "fair share" while someone in the top 10% (2009 Adjusted Gross Income above $112,124) remains employed and therefore available to put more "skin in the game"?
As the chart above demonstrates (source: Congressional Budget Office, 2007 figures), top 10 percenters pay only 25.4% of total FICA receipts but a whopping 72.7% of total income tax. And the president's new social-security-wealth-transfer scheme soaks wealthier taxpayers even more disproportionately: evil one-percenters pay only 4.1% of FICA taxes but 39.5% of total income tax.
Vote Obama and let someone else fund your retirement and your condoms.
At least one liberal Democrat sees political risk in this particular plank of Obama's re-elect strategy:
The strongest Democratic condemnation of the deal came from Senator Tom Harkin, who pledged to vote against it in a fiery Senate speech last night. His problem: the payroll tax cut slows down the revenue stream for the Social Security trust fund. The money will be replaced by money from the general taxation fund, but Harkin is still concerned this sets a precedent for raiding Social Security:
"I never thought I would live to see the day when a Democratic president and a Democratic vice president would agree to put Social Security in this kind of jeopardy," Harkin said on the Senate floor Thursday evening. "Never did I imagine a Democratic president beginning the unraveling of Social Security."
Senator Harkin understands that once Social Security is reduced to just another tax-and-spend program it will lose its third-rail status as an untouchable memorial to FDR, patron saint of entitlements.
However, the president's concerns are more immediate, extending no further than November 6, 2012.
- Comment (10)
- · Quote
- · UnfollowFollow (1)
Comments:
May '10
Re: Spreading the Wealth Around, Tax Cut Edition
It should be remembered every time we talk about the steeply progressive nature of the income tax structure in the US, that, if I understand correctly, it was the Republicans who contributed greatly to this by passing the Earned Income Tax Credit that allows many lower earners to avoid paying "their fair share".
Oct '10
Re: Spreading the Wealth Around, Tax Cut Edition
Good. This moral justification was always a lie. The government took your money and spent it. When it comes time for you to be paid a pension or retirement medical costs, the money comes from people paying tax at that time. The 'trust fund' is neither a trust nor a fund. There is no 'in' to pay 'into'.
Strip away this false consciousness and one can hope that the spurious (and specious) sense of 'entitlement' will fall away, too. Then the American people can have an honest conversation about retirement and health.
May '11
Re: Spreading the Wealth Around, Tax Cut Edition
as far as I can tell, venture socialism and temporary payroll tax holidays seems to be the extent of Obama's economic vision
Oct '10
Re: Spreading the Wealth Around, Tax Cut Edition
Oh come on. Republicans, the party of higher taxes? No matter how bad the policy may be (and it is bad) the politics are much, much worse.
Oct '10
Re: Spreading the Wealth Around, Tax Cut Edition
If ever we indulged ourselves in a fiction, it is the argument about social security funding. Not even any point in describing it, since only the willfully ignorant do not know the truth.
If there is a metaphor for the state of Western civilization, it is social security. Every word we tell ourselves is a lie, but the pretense is necessary to avoid any discussion of the truth.
Feb '11
Re: Spreading the Wealth Around, Tax Cut Edition
Just yesterday, NYT was sneering at some survey results which showed many Republicans, who had at some point received or were receiving Social Security, Medicare, or Unemployment Insurance, believed that they had never been beneficiaries of Federal programs.
In the case of the first two, of course, this belief is a direct consequence of the way these programs have been presented and marketed. If I buy a Treasury bond and later cash it in, does that make me a "beneficiary" of the government? The whole mechanism of payments and account for SS/Medicare was clearly designed to make people think these were actual owned investments, in the sense of a bank account or a Treasury bond or a private annuity.
Re: Spreading the Wealth Around, Tax Cut Edition
The current income tax system--where the bottom half of wage-earners pay nearly nothing--is indeed a bipartisan creation. Indeed, the CBO numbers show the lowest two quintiles in the income distribution making a negative contribution--receiving the Earned Income Tax Credit without paying any net tax. In contrast, the contribution of the top 1% has increased from 18.3% of total tax burden in 1979 to 39.5% in 2007.
Edited on February 18, 2012 at 5:12pmMay '10
Re: Spreading the Wealth Around, Tax Cut Edition
Great line.
Edited on February 18, 2012 at 6:16pmJul '11
Re: Spreading the Wealth Around, Tax Cut Edition
Allowing people to keep the money they earned by not taking it from them via taxes is not "spreading the wealth around".
Re: Spreading the Wealth Around, Tax Cut Edition
If only. Reducing payroll "contributions"--suddenly a tax again only because declining--to one's own retirement "account" and borrowing the resulting shortfall drains money out of the pool available for investment in the short-run and must be repaid in the long run via our steeply progressive income tax.
This policy transfers income from future high-income taxpayers into the pockets of today's lower-income payroll tax cut beneficiaries.
Edited on February 19, 2012 at 7:00am