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GOP Should Launch Offensive in Payroll Tax Fight

“in typical Democrat asinine fashion, they are promulgating a defacto permanent tax cut by telegraphing to the public that it is only temporary, thereby minimizing the pro-growth effect of the tax cut.”

After decades of monstrous lies about Social Security, Democrats have finally blown the cover off their stratagem.  They have always proclaimed that our payroll taxes were held securely in a trust fund in order to purvey retirement checks for each pay roll tax contributor.  Moreover, they emphatically promised that as much as $2.6 trillion in unspent tax revenue had accrued in the trust fund.  Now, with their push for a defacto permanent payroll tax cut, they are shedding all effort to conceal their Social Security mendacity.

The fact that Democrats are attempting to permanently cut the employee’s share of the payroll tax by 50% is a clear repudiation of their first premise.  And let’s face it; the cut will be permanent, as any subsequent relapse would be deemed a tax increase.  Nonetheless, in typical Democrat asinine fashion, they are promulgating a defacto permanent tax cut by telegraphing to the public that it is only temporary, thereby minimizing the pro-growth effect of the tax cut.

Additionally, the fact that their bill calls for $185 billion in general fund transfers to Social Security helps depose the myth that there is anything left in the trust fund.  It is clear that not only is there no existing money in the trust fund, but even the revenue from the current year (which would already come up $50 billion short, even without the tax cut) is insufficient to cover Social Security costs.  In plain English, we would call that a Ponzi scheme, not a pay-as-you-go system.

Sadly, instead of using this as an opportunity to own up to their 70-year old lie, Democrats are doubling down on it.  They are insisting that, due to their tax increases and faux spending cuts, all is fine and dandy with Social Security.  “The legislation would not affect the Social Security Trust Fund by one penny, because it requires that the Social Security Trust Fund be made whole through transfers from the General Fund,” wrote Bob Casey.

The only problem is that the math doesn’t add up.  Their plan would offset a $185 billion deficit in 2012 with tax increases over 10 years.  Yes, they will also adopt the GOP plan to cut anomalous food stamp and unemployment benefits for millionaires – reforms that won’t even save $100 million over 10 years.  In 2009, during the worst year of the recession, the IRS reported that 2,362 millionaires collected a total of $20.8 million in UI, according to Senator Coburn.  On the other hand, a 50% payroll tax, which, for better or worse, will unlikely be repealed – will cost well over $2 trillion over the next 10 years.  Consequently, it is incontrovertibly clear that Social Security will not “be made whole” without accelerating our crushing debt towards the Greece-like day of reckoning.

Now that Democrats have checkmated themselves on Social Security, it’s time for them to grow up and discuss entitlement reform so we can rectify their 70-year monstrous lie.  They have no legitimate rationale to oppose private retirement accounts anymore.  Which accusation will they hurl at us?  Will they accuse us of bankrupting Social Security?  They have already been quite auspicious in attaining that goal.

As for Republicans, they have two viable options; call out Democrats on their Social Security duplicity – and impel entitlement reform, or outflank them by proposing a permanent tax cut.  Either way, they should abandon their current inscrutable strategy of supporting the temporary cut, albeit less enthusiastically, and with the promise of spending offsets – ones they have no intention of fighting for.  They will gain nothing politically from playing follow the leader on the payroll tax cut.  From a policy perspective, they will fail to offset the cost of the cut at the time it is incurred anyway.  Besides, we all know that they will ultimately jettison the spending cuts from the deal (Democrats will never agree to more cuts in the federal workforce).  Accordingly, why look like a fool for demanding something they have no intention of enforcing?

Furthermore, and most important, every spending offset proposal thus far includes extension of super-long unemployment benefits as part of the deal.  These two issues should not be bundled in an effort to force conservatives to vote for a massive entitlement expansion along with tax cuts.  We are now on pace to blow a massive hole in the deficit, and permanently enshrine unemployment as an entitlement, all for a temporary tax cut that will not engender much growth, as witnessed by this past year.

If Republicans want to make Social Security the issue, they should push for something like the Jeff Landry plan.  Rep. Landry, along with Reps. Mulvaney and McClintock, have proposed a bill (HR 3551) which turns the payroll tax holiday into an opt-in system, allowing each worker to annually decide if he or she wants to continue receiving the holiday, in exchange for delaying retirement another month.  This will force Democrats to stop avoiding entitlement reform.

On the other hand, if Republicans want to stay on message as supporting tax cuts, they should make the payroll tax permanent.  What they shouldn’t do is play second fiddle to the Democrats on a non-offset temporary cut, while gaining nothing politically or policy-wise.

Why grant the Democrats multiple political victories for the price of one?

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