Payroll Taxes and Political Games

Payroll Tax Increase: Political Gamesmanship Wherever politics intrudes upon economic life, political success is readily attained by saying what people like to hear rather than what is demonstrably true. Instead of safeguarding truth and honesty, the state then tends to become a major source of insincerity and mendacity. – Hans F. Sennholz

America has dangerous debt caused by politicians – Republicans and Democrats.  Social Security is an unfunded liability and a major contributor to America’s fiscal crisis.  How is DC confronting the crisis?  Political gamesmanship as usual.

 

Presently, Democrats have a winning political tactic and are skewering Republicans over a payroll tax increase of $1,500 for typical working families.  Always ready to gain a political advantage, James Kvaal, Policy Director of BarackObama.com, released an email claiming the cuts will help 160 million people and would be paid for by taxing millionaires and billionaires.

 

In case you missed it -- yesterday Congress voted on a bill that gave them two simple choices:

 

A) Let President Obama's payroll tax cut expire, raising a typical family's taxes by more than $1,000 next year, or

B) Extend and expand the tax cut, helping 160 million people and letting that same family keep $1,500.

 

The payroll tax cut would be paid for by requiring millionaires and billionaires to pay a little more. But some in Congress think millionaires and billionaires should get to keep paying the already-low rate they get, thanks to the Bush tax cuts.

 

Politico labeled similar tactics as a “political gimmick”  when commenting on Senator Conrad's (D-N.D.) acknowledgment for a need to find a serious means to pay for the reduced revenue, Politico reported.

 

“Sen. Kent Conrad (D-N.D.) said the new Democratic plan will be “paid for in a serious way” — an admission that the Democrats’ surtax on millionaires was little more than a political gimmick.”

 

How should serious politicians govern?

 

First, admit the “payroll tax” is really the Social Security tax.  Second, admit that Social Security’s unfunded liabilities are enormous.  Third, realize the “serious proposal” being offered will not substantially reduce the debt caused by Social Security.  Lastly, realize a complete restructure of the Social Security and Medicare system must occur.

 

Because political avoidance and gamesmanship will always prevail, the only real solution is establishing personal accounts for Social Security and Medicare.  When Americans own and control their accounts, politicians will be prevented from diverting other people’s money for their political gamesmanship and aggrandizement.

 

***********

 

"...the only real solution is establishing personal accounts for Social Security and Medicare."

 

I would have to agree.  Further, I would want Americans, not politicians, to have complete control over the money they put into those personal accounts.

 

I watched an interview the other day with someone who used to be associated with Social Security.  He pointed out that by reducing these "payroll taxes" today, it will affect what people receive tomorrow in benefits.  I wonder how many people realize that.  Is it worth getting a boost today when your benefits might be reduced in the future because of that boost?  Isn't that something you should decide, not some politician who doesn't have your best interest at heart, but only cares whether or not he is re-elected?

 

People swear that Republicans want to take your Social Security benefits away, and others swear that isn't so.  But anyone who wants to be informed about Social Security only needs to explore the SS site for an afternoon.  There you'll discover what I've pointed out many times, that the first woman to receive monthly benefits paid in for only 3 years and collected benefits for 30 years.  She paid in $24 and got back $11,000.  Obviously, she did not fund her own retirement any more than any of us will fund what we receive from SS.  It was always meant for your "payroll taxes" to fund current retirees, not your own retirement.  We have all been lied to.

 

Also on the SS site, you can find charts that show what percentages of income were taken out each year and what the cap was where no more was taken.

 

Tax Rates (SS and Medicare)

Amount of earnings subject to taxation for a given year

 

For instance, in 1970, the year I started working, employer and employee each paid 4.8% up to $7800, so the most that anyone paid in was $748.80 if employed (both employer and employee amounts added) and $538.20 if self-employed (6.9% total).  Twenty years later in 1990, the most anyone paid in was 15.3% whether employed (adding employee and employer rates) or self-employed, up to $51,300 or $7848.90.

 

Today, most SS recipients receive around $12,000 per year in monthly "income" and cost tax payers about $11,000 in health care costs, over and above anything they contributed in the past or what they're contributing in monthly premiums.

 

It's a failed system, one that relied on people paying in for years, and dying before they could receive benefits.  With people living into their 70s regularly now, and often into their 80s and 90s, they're receiving benefits that the originators never imagined.

 

If you're a fiscal conservative, but don't embrace changes and improvements to the Social Security system, it makes no sense.  If you care about the future generations, you won't want them "owned" by the government the way seniors are today.

 

Back on the topic at hand....

 

Don't let any politician make these "payroll taxes" gimmes the reason you vote for him/her.