Skip to comments.Middle Class Welfare And The Payroll Tax Holiday
Posted on 12/05/2011 11:11:40 AM PST by Shout Bits
Part of Pres. Obama's latest stimulus package involves renewing a payroll tax holiday that was to expire at the end of 2011. Because FICA taxes are one of the few income taxes that most Americans actually pay, the extension is popular and will probably pass Congress in some form. Of course Social Security and Medicare, the programs funded by FICA taxes, are hopelessly insolvent, and the tax holiday only worsens the problem. More telling is that the tax holiday finally debunks the notion that these programs are self-sustaining entitlements; the tax holiday exposes them simply as middle class welfare.
The government goes to great lengths to present Social Security as an earned right, a savings. A government TV ad opens to a young black man walking with an older man, presumably his grandfather. As is very natural on TV, the young man asks what Social Security is. The old man likens the public pension program to planting a tree. When the young man pays his FICA taxes (15.3% of most people's wages), he is planting a tree that will grow until he retires, and then he can use the value of that tree. Meanwhile, more young workers will plant their own trees, making for a beautiful forest of savings and security. Less metaphorically, every few years, the Social Security administration mails a statement to each taxpayer tallying his contributions and the benefits he has earned so far.
The use of black actors is telling because blacks' lower life expectancies compared to other races makes the value of their Social Security taxes less than zero they would on average be better off stuffing their mattresses with cash. Likewise the tree metaphor is a subtle lie. Trees are tangible, practically immoveable, and each one is a discreet asset that cannot be comingled or vanish without a trace. Trees are reliable and keep growing their whole lives. Finally, the Social Security statements suggest that an individual's benefits are fixed, like money in a savings account; they suggest that the benefits cannot be taken away because they are the property of individual workers.
The government would like people to believe that FICA taxes are more like forced savings and less like a general fund tax. Taxes pay for collective needs such as national defense or roads, while FICA taxes are personal. They are money set aside for the retirement needs of the individuals who pay them; the statements say as much. The TV ads and the statements suggest to the uninformed that these taxes are more like personal savings.
Of course Social Security and Medicare are the biggest lies a government has ever told its people. There are no savings, and there are no reserves. Indeed the programs are underfunded by perhaps $60 trillion. Any savings accounts are illusory, as Congress raided them long ago. Medicare's costs continue to climb, while the purported insurance premium remains constant. There is no connection between retirement benefits earned and taxes paid. Even worse, no retirement benefits are earned, they are just middle class welfare doled out by unreliable politicians.
Obama has taken the final step toward debunking the personal savings myth of FICA taxes. By wishing to extend the 2011 temporary tax cut, he is using FICA taxes as a political tool to lever his stimulus bill past a skeptical Congress. If FICA taxes are to pay for one's retirement, then cutting those contributions should also cut future retirement benefits, but that premise has always been a lie.
Social Security and Medicare have always been a 'pay-as-you-go' benefits package. There has never been a connection between FICA taxes and retirement benefits. Retirees currently benefit from entitlements set at the whim of Congress, not earned through savings; this is a system of middle class welfare. There is no Constitutional way to constrain future Congresses from altering benefits or eliminating them altogether. The only news is that Obama is no longer working from the 'plant a tree for a future generation' script. Like every other tax, FICA is a political tool, and those who were relying on government for their retirements should think again.
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Looks like you got on this first, but my point was slightly different. That is that Obama has dropped all pretense of SS being a savings plan for everyone.
By cutting FICA and replacing it with a millionaire tax, he is admitting that SS is just welfare.
There is no contract. Contracts, by definition, are voluntarily entered into. Many of us never consented, and would never consent, to being part of a Ponzi scheme.
“However, there are a quite a few that express their opinion that they have paid payroll taxes for as long as 50 years, and that they deserve some return on that.”
Well, that’s too bad, because they don’t deserve any return on it. They were stolen from, and the only way they can get a “return” is by stealing from a new group of victims.
It is a very ugly situation, but continuing intergenerational theft is no answer.
I agree, but simply stopping it is not possible, either politically or economically. What we need is a transition to a privately managed (and owned), like what Chile did back in the 80's.
The uninformed like to blame the boomers, but they are in a unique situation. Most of them hit their prime earning years in the 80's when the Social Security tax was ramped up in order to build up the "trust fund".
So, while most generations paid Social Security taxes to provide benefits for older generations, boomers have been effectively paying for both their parent's (and grandparent's) Social Security benefits, and their own. That's why it's unreasonable to suggest that it should be terminated with prejudice.
Yes, the trust fund is effectively an accounting fiction, but you have to consider the alternative. The SSA invested the trust fund in what was considered the safest investment at the time: US government bonds. They could have done better with a well-managed corporate bond portfolio, but do you really think it would have been "well-managed"?
Congress wouldn't have been able to resist tampering. They would have prohibited certain investments. They would have mandated other investments. Decisions would have been political, rather than financial. And, we would have had Solyendra, GM, and Chrysler -- multiplied by thousands.
The lowest 20% of taxpayers get credits like the EITC, which effectively refunds their FICA and Medicare taxes. Their total federal tax rate in 2007 was 0.8% -- that's for all forms of federal taxes: income, excise, and social insurance.
No argument there...however, EITC is more widespread than you think. A family with children up to the poverty level which is near median income level also qualifies last time I looked.
Exactly. There's no "contract" or "bargain"; the Supreme Court very specifically ruled decades ago that we're not "owed" anything. To claim it's a contract is just buying into the scam, which is exactly what the left wants people to do.
I would have demurred were the price not so high. Just because they would have jailed me or forced me to live economically beyond the law does not allow them to stiff me.
Don't worry, I'll take mine as a nice bit of Yellowstone Park or maybe my own bit of bandwidth in the EM spectrum or mineral rights in Bryce canyon.
Fear not, just because they used the money to fund all kinds of goodies "for the children" does not mean we expect anything of you.
On the contrary, as a teacher I understand how little we can expect from the next few future generations. As evidence, I offer OWS.
Of course I’ve paid, and much more than most. But what you need to realize is that FICA is just a tax, like the income tax and gas taxes are just taxes. We aren’t entitled to anything by virtue of having paid any tax - something that the SCOTUS has held.
SS was a fraud from the beginning. So, even though I should be collecting in a few years, I don’t argue that someone is required to pay taxes to give me my FICA money back any more than I think others are obligated to pay taxes so I can get my income taxes or any other tax back. The people who made off with my FICA “contributions” over the last 40 years are mostly long gone. I certainly don’t have a moral claim to make new SS victims of others for the money I had taken from me.
Are you not reading what I say and just putting forward your position?
I am advocating that we who were forced into participating in the "Big Lie" deserve to made whole from the entity that committed the fraud.
The government owns far more than it should and can use it to pay us what they stole! Personally, if they were to offer me a nice 40 acre plot in Glacier park, I would probably take it. I suspect my wife would drive a harder bargain.
We should not allow ourselves to be screwed by a progressive law that should never have been passed - WE ARE AMERICANS and, as such, are armed and able. (maybe not as much as a few decades ago but you catch my drift).
Never give in - organize. We can be made whole, mon ami.
call it a pension or call it welfare....the implication was and always has been that we pay, we get....
for all those on govt pensions of one kind of another or on the fast disappearing private sector pension, I guess you don't have to worry about SS....
but for those of us who have none of those fat pensions, SS is not only needed, but deserved....
The government raided the trust fund and now it doesn’t want to honor the IOUs it left in place of the revenues; therefore, it is the insolvency of our government that jeopardizes the SS system. As far as I’m concerned, if the government can afford to bail out banksters, and unions, and solyndra and foreign countries it can damn sure afford to honor its obligations to this nations retirees.
What does that have to do with anything?
You have hit the nail on the head, but not hard enough.
The “reforms” of the 1980s to “secure” SS dramatically boosted collections. While these were supposed to be set aside to ensure the solvency of SS, they were, in fact, placed into the general budget, where, over 35 years, they were used to cover up progressively bigger deficits under both Republicans and Democrats.
So, not only were the FICA taxes not saved (i.e. earning interest), they have been spent.
That we have managed to spend TRILLIONS in FICA taxes and still find ourselves with a $15 TRILLION deficit (omitting SS and Medicare shortfalls) tells you how seriously screwed we are.
Now, as the baby boomers retire, they will need to pay for their retirements AGAIN. That is, we are running a $1.5 TRILLION annual deficit, and SS must by law cash bonds to make payments to retirees; cash to redeem those bonds must come from the general fund, either by crowding out other expenses or via increased deficits.
Lastly, in re your suggestion that the trust fund should have been invested in a corporate bond portfolio, that would have made the US government the owner of ALL corporate bonds, based on the magnitude of the cash flows involved. While some would argue that this would reduce the corporations’ cost of capital and encouraged investment and growth, it also would have partially or completely replaced fiduciary obligations with political concerns (IMHO), which would add risk and likely engender capital flight (we are in agreement).
I think we should have pursued a transition to the Chilean model, which would mandate private savings while providing a limited safety net. This idea has been bruited several times since then, but has always been scaremongered.
Now people are going to truly see the depths of the abyss, and most are too afraid to look (and politicians are only too happy to not tell them while the happy music plays on).
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