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.