Payroll tax cut conundrum

An issue is before Congress that has both Republicans and Democrats tied up in ideological knots.  Republicans oppose deficit spending.  They also are in favor of tax cuts.  Democrats are usually fine with government spending, which they are willing to finance with higher taxes.  So what do they do about extending the payroll tax cuts?

Part of President Obama’s stimulus package was to cut the amount people have to pay into social security, thus adding some dollars to their paychecks.

Now that provision is expiring, and the Obama administration wants to extend it.  But some Republicans are arguing that social security is already being starved and is headed for bankruptcy.  So it isn’t responsible to just take even more out of social security funding.

So now Democrats, including the President, are accusing Republicans of wanting to increase taxes!

See Republicans split on Democratic plan to extend payroll tax cut – The Washington Post.

What would be the statesman-like thing to do, as opposed to the political-rhetoric thing to do?

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • SKPeterson

    Invade Canada.

  • SKPeterson

    Invade Canada.

  • Dennis Peskey

    Hockey sticks!
    Pax,
    Dennis

  • Dennis Peskey

    Hockey sticks!
    Pax,
    Dennis

  • SAL

    Let the payroll tax rise back to what it was. Every dollar we borrow today is many dollars more in higher taxes tomorrow.

    I’d rather take the hit today than in the future when we’re in more dire straits.

    Generally I’d favor eliminating Social Security and replacing it with a guaranteed income for the elderly (over 75) at about the same level. Social Security is government welfare except we give it to large groups of elderly who are able to care for themselves without it. Cut out the SS welfare checks to the upper and middle classes, and you’ve solved half of the entitlement crisis from Baby Boomers retiring.

  • SAL

    Let the payroll tax rise back to what it was. Every dollar we borrow today is many dollars more in higher taxes tomorrow.

    I’d rather take the hit today than in the future when we’re in more dire straits.

    Generally I’d favor eliminating Social Security and replacing it with a guaranteed income for the elderly (over 75) at about the same level. Social Security is government welfare except we give it to large groups of elderly who are able to care for themselves without it. Cut out the SS welfare checks to the upper and middle classes, and you’ve solved half of the entitlement crisis from Baby Boomers retiring.

  • Klasie Kraalogies

    SKP – Invading cold countries have a history of failing – ask Napoleon and Hitler. Oh yes, and it it failed last time – http://www.youtube.com/watch?v=Ety2FEHQgwM :) :) (this one is especially for Grace!)

  • Klasie Kraalogies

    SKP – Invading cold countries have a history of failing – ask Napoleon and Hitler. Oh yes, and it it failed last time – http://www.youtube.com/watch?v=Ety2FEHQgwM :) :) (this one is especially for Grace!)

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    The payroll tax is regressive. Well, more so than the income tax. The payroll tax is on earnings up to X, whereas the income tax doesn’t start until your earn at least X. There are special tax reducing deals for folks at the bottom and the top. So, it is the middle that finds it much harder to reduce tax burdens, being neither rich enough nor poor enough to get a break. They do however get a break with the payroll tax, uh, temporary suspension. Maybe the Dems are thinking that this is a way to get more middle income voters.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    The payroll tax is regressive. Well, more so than the income tax. The payroll tax is on earnings up to X, whereas the income tax doesn’t start until your earn at least X. There are special tax reducing deals for folks at the bottom and the top. So, it is the middle that finds it much harder to reduce tax burdens, being neither rich enough nor poor enough to get a break. They do however get a break with the payroll tax, uh, temporary suspension. Maybe the Dems are thinking that this is a way to get more middle income voters.

  • SKPeterson

    But, K – It is our historical means of deflecting attention, uniting the nation, etc. Besides, everyone knows Canadians are tired of British imperialism and being oppressed by the Monarchy. They want us to invade and provide the blessings of democracy to every man, woman and child, and to bring them in to the American fold. From Yellow Knife to Prince Edward Island, one day, the Canadian people yearning to breathe free will realize their liberty and full potential as part of the United States (membership irrevocable and maintained by force of arms).

    Invade Canada. Now. For the Children.

  • SKPeterson

    But, K – It is our historical means of deflecting attention, uniting the nation, etc. Besides, everyone knows Canadians are tired of British imperialism and being oppressed by the Monarchy. They want us to invade and provide the blessings of democracy to every man, woman and child, and to bring them in to the American fold. From Yellow Knife to Prince Edward Island, one day, the Canadian people yearning to breathe free will realize their liberty and full potential as part of the United States (membership irrevocable and maintained by force of arms).

    Invade Canada. Now. For the Children.

  • Klasie Kraalogies

    SKP – first you have to find Canada on the map. Since McCain still thinks that is how the 9/11 guys entered the US, it is probably somewhere close to either San Diego, or Florida……

  • Klasie Kraalogies

    SKP – first you have to find Canada on the map. Since McCain still thinks that is how the 9/11 guys entered the US, it is probably somewhere close to either San Diego, or Florida……

  • Jerry

    Agree with SAL @3. The statesman like thing is to drop the whole Social Security charade and replace it with a straight forward program that can be properly managed without the rhetoric. How and in what manner income is redistributed then can be appropriately discussed.

  • Jerry

    Agree with SAL @3. The statesman like thing is to drop the whole Social Security charade and replace it with a straight forward program that can be properly managed without the rhetoric. How and in what manner income is redistributed then can be appropriately discussed.

  • Lisa

    Let the payroll tax rise back to what it was. Every dollar we borrow today is many dollars more in higher taxes tomorrow.

    I’d rather take the hit today than in the future when we’re in more dire straits.

    @SAL, do you feel this way about the Bush tax cuts also? Isn’t the same concepts at play here?

  • Lisa

    Let the payroll tax rise back to what it was. Every dollar we borrow today is many dollars more in higher taxes tomorrow.

    I’d rather take the hit today than in the future when we’re in more dire straits.

    @SAL, do you feel this way about the Bush tax cuts also? Isn’t the same concepts at play here?

  • Lisa

    Aren’t the same concepts at play, not isn’t.

  • Lisa

    Aren’t the same concepts at play, not isn’t.

  • Klasie Kraalogies

    Jerry, SAL – it does seem, from this side of the 49th, that your tax, social security and medicare systems are incredibly complicated. Simplification is probably the first step, whatever the desired outcome….

    But how did it get so convoluted? I remember listening to the Governor of Montana (as I mentioned earlier this week in another thread) on his frustrations with Medicare, and on how he wanted to emulate the SK system, which covered more people, at half the cost. It seemed that the biggest problem was its convoluted, complicated, intricate, messed up – you get the message – nature. Same with your tax code. I want to know why?

  • Klasie Kraalogies

    Jerry, SAL – it does seem, from this side of the 49th, that your tax, social security and medicare systems are incredibly complicated. Simplification is probably the first step, whatever the desired outcome….

    But how did it get so convoluted? I remember listening to the Governor of Montana (as I mentioned earlier this week in another thread) on his frustrations with Medicare, and on how he wanted to emulate the SK system, which covered more people, at half the cost. It seemed that the biggest problem was its convoluted, complicated, intricate, messed up – you get the message – nature. Same with your tax code. I want to know why?

  • JunkerGeorg

    Dr. Veith writes,

    “Republicans oppose deficit spending. They also are in favor of tax cuts. Democrats are usually fine with government spending, which they are willing to finance with higher taxes.”

    ———————————————————–
    Dr. Veith, with all due respect (and I do mean that whole-heartedly, more than you know!!), I no longer buy into this suggestion that “Republicans oppose deficit spending”—that only the Democrats are “tax & spend” and the Republicans are not.

    “By their fruits ye shall know them.” The fact that only 22 Republicans voted against the Debt Increase Bill (i.e., deficit spending) this summer was the clincher for me, and even the proposed Paul Ryan Budget Bill was ultimately piecemeal as well, just a “rearranging of the deck chairs on the Titanic.” In some ways, it is very simple math, almost too simple, which is perhaps part of the reason why we overlook it. Cuts in “deficit spending” is not the same thing as cuts in spending period! It is not merely ceasing the deficit spending over/above the current (and future!) expenditure levels, it is the spending period at the current and future expenditure levels which is the problem. And BOTH parties are culpable in this, just as they are both culpable in the inflationary monetization of all this debt spending via the sacred cow of the Federal Reserve while the dollar continues its plummet to nothing. (Such inflation/devaluation of the dollar IS hardly a “tax cut”, but just another form of tax, one which is causing the greatest burden for the middle class, or lower middle class like myself.) In this light, any Republicans talking about “cuts in deficit spending” is ultimately that: “Just talk.” It’s simply a matter of which party holds the next credit card to spend on what they want. For instance, when NWO neocon Republicrats like Gingrich and Romney in the recent debate on Foreign Policy decried the cuts to military in the Obama budget proposals, such cuts were based on proposed FUTURE spending increases over/above what is being spent currently. But all that people hear is “cuts to military” and freak out. But even so, at the rate that both parties are going, spending like a drunken teenage girl on spring break with daddy’s credit card, we will not be able to afford a national defense of the homeland, let alone this foreign nation-building “offense” of perpetual wars abroad. This perverted Republic-become-empire will fall in the same way Rome did.

    Republicrats can ridicule him all they want, or just call him a libertarian (when the more accurate label is simply an anti-federalist constitutionalist) but imo, the only true “fiscal conservative” really left in the race and one of only a few in D.C., points this out about both parties, comments made relative to that bi-partisan Debt Increase Bill this past summer. Others no doubt think he is looney (like many teenage girls on spring break cry about their over-protective crank of a dad), but I think he is right :
    One might think that the recent drama over the debt ceiling involved one side wanting to increase or maintain spending with the other side wanting to drastically cut spending, but that is far from the truth. In spite of the rhetoric being thrown around, the real debate is over how much government spending will increase. No plan under serious consideration cuts spending in the way you and I think about it. Instead, the cuts being discussed are illusory and are not cuts from current amounts being spent, but cuts in PROSPECTIVE SPENDING INCREASES. This is akin to a family saving $100,000 in expenses by deciding not to buy a Lamborghini and instead getting a fully loaded Mercedes when really their budget dictates that they need to stick with their perfectly serviceable Honda. But this is the type of math Washington uses to mask the incriminating truth about the unrepentant plundering of the American people. The truth is that frightening rhetoric about default and full faith in the credit of the United States being carelessly thrown around to ram through a bigger budget than ever in spite of stagnant revenues. If your family’s income did not change year over year, would it be wise financial management to accelerate spending so you would feel richer? That is what our government is doing, with one side merely suggesting a different list of purchases than the other.
    ——
    Sorry for the rant. I’m in a snarky mood this morning. But please at least consider what is being said, regardless of who is saying it.

  • JunkerGeorg

    Dr. Veith writes,

    “Republicans oppose deficit spending. They also are in favor of tax cuts. Democrats are usually fine with government spending, which they are willing to finance with higher taxes.”

    ———————————————————–
    Dr. Veith, with all due respect (and I do mean that whole-heartedly, more than you know!!), I no longer buy into this suggestion that “Republicans oppose deficit spending”—that only the Democrats are “tax & spend” and the Republicans are not.

    “By their fruits ye shall know them.” The fact that only 22 Republicans voted against the Debt Increase Bill (i.e., deficit spending) this summer was the clincher for me, and even the proposed Paul Ryan Budget Bill was ultimately piecemeal as well, just a “rearranging of the deck chairs on the Titanic.” In some ways, it is very simple math, almost too simple, which is perhaps part of the reason why we overlook it. Cuts in “deficit spending” is not the same thing as cuts in spending period! It is not merely ceasing the deficit spending over/above the current (and future!) expenditure levels, it is the spending period at the current and future expenditure levels which is the problem. And BOTH parties are culpable in this, just as they are both culpable in the inflationary monetization of all this debt spending via the sacred cow of the Federal Reserve while the dollar continues its plummet to nothing. (Such inflation/devaluation of the dollar IS hardly a “tax cut”, but just another form of tax, one which is causing the greatest burden for the middle class, or lower middle class like myself.) In this light, any Republicans talking about “cuts in deficit spending” is ultimately that: “Just talk.” It’s simply a matter of which party holds the next credit card to spend on what they want. For instance, when NWO neocon Republicrats like Gingrich and Romney in the recent debate on Foreign Policy decried the cuts to military in the Obama budget proposals, such cuts were based on proposed FUTURE spending increases over/above what is being spent currently. But all that people hear is “cuts to military” and freak out. But even so, at the rate that both parties are going, spending like a drunken teenage girl on spring break with daddy’s credit card, we will not be able to afford a national defense of the homeland, let alone this foreign nation-building “offense” of perpetual wars abroad. This perverted Republic-become-empire will fall in the same way Rome did.

    Republicrats can ridicule him all they want, or just call him a libertarian (when the more accurate label is simply an anti-federalist constitutionalist) but imo, the only true “fiscal conservative” really left in the race and one of only a few in D.C., points this out about both parties, comments made relative to that bi-partisan Debt Increase Bill this past summer. Others no doubt think he is looney (like many teenage girls on spring break cry about their over-protective crank of a dad), but I think he is right :
    One might think that the recent drama over the debt ceiling involved one side wanting to increase or maintain spending with the other side wanting to drastically cut spending, but that is far from the truth. In spite of the rhetoric being thrown around, the real debate is over how much government spending will increase. No plan under serious consideration cuts spending in the way you and I think about it. Instead, the cuts being discussed are illusory and are not cuts from current amounts being spent, but cuts in PROSPECTIVE SPENDING INCREASES. This is akin to a family saving $100,000 in expenses by deciding not to buy a Lamborghini and instead getting a fully loaded Mercedes when really their budget dictates that they need to stick with their perfectly serviceable Honda. But this is the type of math Washington uses to mask the incriminating truth about the unrepentant plundering of the American people. The truth is that frightening rhetoric about default and full faith in the credit of the United States being carelessly thrown around to ram through a bigger budget than ever in spite of stagnant revenues. If your family’s income did not change year over year, would it be wise financial management to accelerate spending so you would feel richer? That is what our government is doing, with one side merely suggesting a different list of purchases than the other.
    ——
    Sorry for the rant. I’m in a snarky mood this morning. But please at least consider what is being said, regardless of who is saying it.

  • DonS

    This is an ideological issue for Obama. As sg has pointed out above, @ 5, it is his view, as well as that of others on the left, that the payroll tax is regressive, and thus, definitionally “unfair”. Over the years, they have managed to unhook 47% of taxpayers from having any skin in the game insofar as income taxes are concerned, and now it is their mission to reduce these “regressive, unfair” taxes. Not all Democrats agree with this mentality, because they understand that Social Security was created as a social insurance program, and these taxes at least have some connection to benefits that you will be entitled to receive later under the program. They worry that changing Social Security openly to the welfare program that it has largely become, by reducing payroll taxes and means-testing benefits, will do long-term damage to the program. They also understand that the tax is not really regressive, because benefits are disproportionately paid to lower income earners. Earners in the $100,000 range, near the top of the income limit, pay four times the tax that a $25,000 earner pays, but will only receive a benefit about 50-75% higher under the benefit schedule (I don’t have time to research this right now, but I know my order of magnitude on the disparity is correct).

    Temporary tax rebates of this nature do nothing to grow the economy long-term. No one can hire a permanent employee because they are going to save 2% on their payroll tax this year. We need to reform the tax system, making it simpler and more oriented to productivity. But, under this president, that will not happen. So, since it is an election year, we will just add a couple of hundred billion dollars in additional debt for our children to pay.

  • DonS

    This is an ideological issue for Obama. As sg has pointed out above, @ 5, it is his view, as well as that of others on the left, that the payroll tax is regressive, and thus, definitionally “unfair”. Over the years, they have managed to unhook 47% of taxpayers from having any skin in the game insofar as income taxes are concerned, and now it is their mission to reduce these “regressive, unfair” taxes. Not all Democrats agree with this mentality, because they understand that Social Security was created as a social insurance program, and these taxes at least have some connection to benefits that you will be entitled to receive later under the program. They worry that changing Social Security openly to the welfare program that it has largely become, by reducing payroll taxes and means-testing benefits, will do long-term damage to the program. They also understand that the tax is not really regressive, because benefits are disproportionately paid to lower income earners. Earners in the $100,000 range, near the top of the income limit, pay four times the tax that a $25,000 earner pays, but will only receive a benefit about 50-75% higher under the benefit schedule (I don’t have time to research this right now, but I know my order of magnitude on the disparity is correct).

    Temporary tax rebates of this nature do nothing to grow the economy long-term. No one can hire a permanent employee because they are going to save 2% on their payroll tax this year. We need to reform the tax system, making it simpler and more oriented to productivity. But, under this president, that will not happen. So, since it is an election year, we will just add a couple of hundred billion dollars in additional debt for our children to pay.

  • SKPeterson

    Why not simply repeal the payroll tax? That should be the Republican rejoinder – keep tax rates the same, just quit taking it out of people’s paychecks. Then send them the annual bill. Oh, wait. That might cause riots or Congressmen being unceremoniously turned out of office.

  • SKPeterson

    Why not simply repeal the payroll tax? That should be the Republican rejoinder – keep tax rates the same, just quit taking it out of people’s paychecks. Then send them the annual bill. Oh, wait. That might cause riots or Congressmen being unceremoniously turned out of office.

  • Nathan

    Why don’t we defenestrate the Congressmen instead?

  • Nathan

    Why don’t we defenestrate the Congressmen instead?

  • –helen

    How is it that we talk so much about Social Security and never about the probability that we are paying much larger amounts to three or four sets of Congressmen, one set “sitting”, and the others sitting on their duffs or employing ghost writers to further inflate their income?

    Truman’s widow was the recipient of the first Presidential pension.
    They gave it to her to keep her from starving on a WW I corporal’s pension, $25, ooo, sometime in the 50′s. Truman refused to write books, give speeches or otherwise profit from being President.

    Now, ex Presidents do all those things and more, (besides running around the world interfering in other people’s business).
    I don’t think Presidents, Congressmen, or anyone else who profits from a governmental position (Goldman-Sachs employees, inc.) should receive any government pension unless their income falls to half their Congressional salary, at the time they served.

    Who’s going to “bell the fat cats” on that one!?

  • –helen

    How is it that we talk so much about Social Security and never about the probability that we are paying much larger amounts to three or four sets of Congressmen, one set “sitting”, and the others sitting on their duffs or employing ghost writers to further inflate their income?

    Truman’s widow was the recipient of the first Presidential pension.
    They gave it to her to keep her from starving on a WW I corporal’s pension, $25, ooo, sometime in the 50′s. Truman refused to write books, give speeches or otherwise profit from being President.

    Now, ex Presidents do all those things and more, (besides running around the world interfering in other people’s business).
    I don’t think Presidents, Congressmen, or anyone else who profits from a governmental position (Goldman-Sachs employees, inc.) should receive any government pension unless their income falls to half their Congressional salary, at the time they served.

    Who’s going to “bell the fat cats” on that one!?

  • http://www.toddstadler.com/ tODD

    Helen asked (@16):

    How is it that we talk so much about Social Security and never about the probability that we are paying much larger amounts to three or four sets of Congressmen, one set “sitting”, and the others sitting on their duffs or employing ghost writers to further inflate their income?

    Are you serious? Social Security takes up a whopping 1/5 (20%!) of our federal budget. How much do pensions for elected officials cost us?

    I mean, you may think that there’s a case for outrage or injustice to be made here, but in terms of actual impact on our budget (and, therefore, on taxpayers’ wallets), the amount of time we should spend discussing pensions for elected officials is, proportionately, infinitesimal.

  • http://www.toddstadler.com/ tODD

    Helen asked (@16):

    How is it that we talk so much about Social Security and never about the probability that we are paying much larger amounts to three or four sets of Congressmen, one set “sitting”, and the others sitting on their duffs or employing ghost writers to further inflate their income?

    Are you serious? Social Security takes up a whopping 1/5 (20%!) of our federal budget. How much do pensions for elected officials cost us?

    I mean, you may think that there’s a case for outrage or injustice to be made here, but in terms of actual impact on our budget (and, therefore, on taxpayers’ wallets), the amount of time we should spend discussing pensions for elected officials is, proportionately, infinitesimal.

  • http://steadfastlutherans.org/ SAL

    Congress is a business to enrich lobbyists, politicians, lawyers and the PR industry.

    The regulations that are proposed in Congress are put forward either because powerful wealthy groups bought Congressmen or because Congressmen want a powerful wealthy group are soliciting protection money.

    When you understand Congress is completely corrupt and self-serving, then you’re on your way to understanding why government is a problem that must be confined to a tiny sphere of life. Government power is too appealing a prize not to draw all manner of corrupt and devious psychopaths and megalomaniacs.

    As far as taxes. I’d support ending most of what the government does. If we refuse to shoulder the burden of freedom then we ought to feel the full cost of tyranny by paying taxes to support all our obligations.

  • http://steadfastlutherans.org/ SAL

    Congress is a business to enrich lobbyists, politicians, lawyers and the PR industry.

    The regulations that are proposed in Congress are put forward either because powerful wealthy groups bought Congressmen or because Congressmen want a powerful wealthy group are soliciting protection money.

    When you understand Congress is completely corrupt and self-serving, then you’re on your way to understanding why government is a problem that must be confined to a tiny sphere of life. Government power is too appealing a prize not to draw all manner of corrupt and devious psychopaths and megalomaniacs.

    As far as taxes. I’d support ending most of what the government does. If we refuse to shoulder the burden of freedom then we ought to feel the full cost of tyranny by paying taxes to support all our obligations.

  • http://www.bikebubba.blogspot.com bike bubba

    I think, as another commenter noted, that the statesmanlike thing to do is to admit that Socialist Insecurity and Medicare have by their existence destroyed the actuarial assumptions required for them to work, and then to gradually and gracefully extricate the nation from these debacles.

    I won’t be holding my breath.

  • http://www.bikebubba.blogspot.com bike bubba

    I think, as another commenter noted, that the statesmanlike thing to do is to admit that Socialist Insecurity and Medicare have by their existence destroyed the actuarial assumptions required for them to work, and then to gradually and gracefully extricate the nation from these debacles.

    I won’t be holding my breath.

  • helen

    Congress is a business to enrich lobbyists, politicians, lawyers and the PR industry. –SAL

    tODD, if you add up the rest of what Congress costs us, perhaps it’s not so small, after all?

    SAL… You forgot Wall Street!

  • helen

    Congress is a business to enrich lobbyists, politicians, lawyers and the PR industry. –SAL

    tODD, if you add up the rest of what Congress costs us, perhaps it’s not so small, after all?

    SAL… You forgot Wall Street!

  • JunkerGeorg

    @Helen,

    Here’s a visual graph for last year’s Federal budget/expenditures. Hope it proves helpful. :)

    http://en.wikipedia.org/wiki/File:Fy2010_spending_by_category.jpg

  • JunkerGeorg

    @Helen,

    Here’s a visual graph for last year’s Federal budget/expenditures. Hope it proves helpful. :)

    http://en.wikipedia.org/wiki/File:Fy2010_spending_by_category.jpg

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