Watch Out for Payroll Tax Mendacity from Democrats During Lame Duck

Monday, October 22nd, 2012 and is filed under Blog, Taxes

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What is the most malevolent cardinal sin in the eyes of the socialist Democrats?  There are several of them, but perhaps the worst thing a Republican can do is suggest that workers be allowed to place some of their payroll tax contribution into private accounts that will net more interest during retirement.  Such flexibility and individual responsibility is an anathema to their desideratum of collective responsibility for retirement.  To that end, they demagogue any Social Security reform plan and condemn it as an act tantamount to killing old people.

Yet, Democrats have unceremoniously deconstructed their 70 years’ worth of Social Security demagoguery by vitiating their consecrated link between the program and the payroll tax.  While they are vociferously opposed to diverting a percentage of the payroll tax to private accounts, they have no problem cancelling $120 billion in payroll tax revenue by not collecting it for 2 years.  Now, as the Financial Times reports, Democrats are contemplating another effort to demagogue the tax cliff with yet another extension of the 2% payroll tax cut.

“Some Democrats in Congress are seeking to include an extension of the $120bn payroll tax cut in negotiations over the looming ‘fiscal cliff’, shaking what had appeared to be a bipartisan consensus to allow the measure to expire as planned at the end of the year. The move could complicate the budget talks due to begin after the November presidential election and alarm rating agencies – since the sunset of the payroll tax measure is the only big provision that both parties seem comfortable directing towards deficit reduction …

‘Democrats on Capitol Hill are showing signs of balking at the notion that the payroll tax cut should be sacrificed to help solve the US’s debt problems. Their top objective still remains to force Republicans to accept the expiration of Bush income tax cuts for the rich, while extending middle-class income tax cuts. ‘[The payroll tax cut] could potentially be in the mix, just not at the top of the priority list,’ said one Democratic aide in the Senate. “There’s not necessarily a big push at this time to extend it … in the Senate.”

As conservatives, we like any and every tax cut and every opportunity to keep more of our money.  However, Democrats have perpetuated this lie for decades that our payroll taxes are funding Social Security and constituting the trust fund as a pay-as-you-go-system.  That’s why they have long opposed diverting some of the tax money to private accounts.  So how can they continue to support a complete reprieve of the tax year after year?

The reality is that there is no trust fund; the entire program has become a Ponzi scheme, as witnessed by the desire of Democrats to offer a defacto permanent reprieve from 2% of payroll taxes.

Republicans should expose the SS mendacity of Democrats and force them to answer the following questions:

1)      If temporary payroll tax cuts are so stimulative, how do you explain its failure to create jobs in 2011 and 2012?  Why will 2013 be different?
2)      If allowing the payroll tax cut to expire will engender a “downright scary” impact on the larger economy, as Harry Reid has suggested during the original fight over the payroll tax cut, then how scary will it be when the Bush tax cuts expire?
3)      If we can forego the revenue to Social Security for three years, how much longer will we continue extending the payroll tax without regard to Social Security?  Why not extend it indefinitely, which will, at least, provide some pro-growth stimulus.  Why not eliminate it completely?
4)      In FY 2012, the payroll tax reduction necessitated $125 billion in general revenue transfers to Social Security.  Does that reflect the accounting of a pay-as-you-go system or a Ponzi scheme?
5)      Why not repeal the Medicare payroll tax?  Isn’t that also a burden on “the working class?”  We’ll just borrow more money or tax the rich to pay for Medicare benefits.  Also, the 18.4 cent federal gasoline tax is another regressive tax on the “working class.”  Why not cut that tax for a year or two?  What will happen to the Highway Trust Fund?  We’ll just enact permanent tax increases on the rich to pay for this temporary cut.
6)      Should the rich be responsible to pay for everyone else’s Social Security?  If so, why should anybody but the rich ever have to pay taxes that are earmarked for specific services?  And if the rich should pay for current SS, why not divert the funds to private retirement accounts instead of the vapid SS Trust Fund?  Why is this scheme less objectionable to the left than private accounts?

Democrats want a temporary 2% deduction in payroll taxes.  How about a permanent 12.4% elimination of the payroll tax – as it is currently constituted?  Instead, every younger worker should be allowed to divert those payroll taxes into private retirement accounts.  These accounts would be tax free, and any cash contributions would be tax-deductible.   Also, all post-retirement distributions from the account would be tax free.  And, most importantly, everyone would maintain property rights over their own account.  To that end, upon the death of the account beneficiary, irrespective of his/her age, the inheritors of the estate will be able to assume full ownership of the account.

That would epitomize real tax relief for every single worker.  And yes, it would save personal retirement for those who are destined to be robbed by the Ponzi scheme, and it would trim projected deficits by trillions.  You can think of it as a pay-as-you-go system.  For every additional amount of payroll taxes that Obama desires to cut, there should be a commensurate amount that is remanded back to younger workers for their own retirement.  Otherwise, we will wind up with a temporary no-growth rebate for one or two years, and no retirement savings for an entire generation.