After Labor Day, Obama plans to unveil his highly unanticipated jobs plan. Much like his first jobs plan, this one will include massive stimulus handouts to special interests, prodigal infrastructure spending (as much as $556 billion), unprecedented extensions of unemployment benefits, and more welfare transfer payments. Concurrently, he will inveigh against "rich" job creators and offer a healthy dose of vapid rhetoric regarding regulatory reform. However, there will be something new – something more appealing to the skeptical electorate; extending the one-year cut in payroll taxes.
Obama intuitively knows that his failed Keynesian policies have been checkmated, and will no longer resonate with the public. Accordingly, he plans to one-up Republicans in their own playbook, by offering a tax cut. He will request that Congress renew the payroll tax cut for another year, keeping the employee's share of the tax at 4.2%.
While conservatives support any and every tax cut they can achieve, Obama knows that they are tepid regarding the payroll tax holiday. Unlike most other broad-based, universal taxes, the payroll tax is used to fund a specific expenditure, and perhaps, the most important one – Social Security. As Congressman Jeb Hensarling observes, “not all tax relief is created equal.” If we fail to collect such a whopping sum of the tax that purveys the trust fund, won't we bankrupt Social Security even further? At a time when Social Security Disability Insurance is already running dry, Obama plans to bankrupt the old age trust fund by another $120 billion.
Oh, whoops, I forgot; there is no trust fund. It has been run like a Ponzi scheme all along.
Rick Perry once again raised the prominence of this inconvenient truth, when he spoke the truth about what the Democrats have done to Social Security over the years: "It [Social Security] is a Ponzi scheme for these young people. The idea that they’re working and paying into Social Security today, that the current program is going to be there for them, is a lie. It is a monstrous lie on this generation, and we can't do that to them."
While the dummies at the Politico are aghast at such venerable declarations, they would be wise to interpret Obama's callous disregard for Social Security as vindication of Governor Perry's accusation. If Social Security is completely funded by payroll taxes, and doesn't add one dime to the debt, then how can Obama so blithely void those taxes?
The answer is simple: there is no trust fund. There are only IOUs.
Aside for bankrupting Social Security – to the extent that it’s not already insolvent – a temporary payroll tax cut is a lousy economic stimulus. While conservatives cheer any opportunity to separate the federal government from extra revenue, this temporary gimmick is akin to the $600 rebate checks and the stimulus credits. It is not pro-growth, especially because it fails to cut the employer's share, which would incentivize job creators to hire workers.
Yet, Obama’s “let’s make a war with aliens” economists have declared the 2% employee payroll deduction to be the best jobs and economic stimulus on the table. Earlier this year, Obama warned that failure to extend the payroll tax holiday "could mean 1 million fewer jobs and half a percent less growth." I guess the fiscal year 2011 economy didn’t receive that memo – the same memo that said that more unemployment welfare and food stamps would have a multiplying effect on job creation. Then again, promoting recently failed policies, as if they have never been tried, has become a hallmark of this president.
Now that Obama has been exposed for his mendacity regarding Social Security, Republicans should call his bluff on extending the 2% payroll tax holiday. They should acquiesce to the tax deal, only if Obama agrees to solve the underlying problem and reform Social Security.
Obama wants 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.
Or, would you rather have Bernie Madoff offer you a tax cut?