Senator Dick Durbin (D, IL), in his regular email blast, reports that “the GOP is threatening to throw working families under the bus – again.”
Now, coming from the majority whip of the party that singlehandedly drove American manufacturing overseas with its crippling taxes and strangling regulations, this is quite a cocky claim. But he goes on.
“This week,” he continues, “Republicans are poised to vote to force average working families to pay $1,000 more in taxes next year by blocking an extension of the payroll tax holiday instead of asking the wealthiest Americans to pay their fair share on income over $1 million.”
What’s he talking about? The temporary removal of two percent off the 6.2% Social Security tax collection that is visible to the worker on his pay stub… which featured as a key part of the 2010 year-end tax-cut extension package that the president was steamrolled into accepting by the 2010 electoral juggernaut.
Now, money is fungible. Viewed from the perspective of funding the government, the government shouldn’t care where revenue comes from, as long as it comes in. Among the legitimate goals of government is to raise enough money to pay its bills, while keeping those bills as low as possible, and while designing that tax collection to be as minimally destructive as possible. They may not try hard to do the first two, but it shouldn’t be so hard to keep the last effort in mind.
The so-called “payroll tax” is a type of income tax that is theoretically (though not remotely actually) targeted toward the funding of America’s public retirement plan, the Social Security program. During the days of Franklin Delano Roosevelt, it was sold as a sort of government-managed investment fund.
Equal contributions are confiscated visibly from the employee and invisibly from his employer… unless you’re unfortunate enough to be a small businessman, in which case you pay both halves yourself – for a total of 12.4% - and remain all too painfully aware of the full extent of your “contribution.”
In 2010’s waning days, then, the American worker’s paycheck became two percent thicker as the Social Security collection was temporarily reduced.
Just how good or bad an idea this was depends on several things.
Should we accept the fiction?
If we accept the theory that Social Security is a genuine investment fund of any kind, with the collections put in a lockbox and invested, then one thing is clear. Intentionally depleting that ongoing collection by a visible third (an actual sixth) is to render a likely fatal blow to the fund’s stability. Social Security is already in the neighborhood of its long-anticipated reckoning, as retirees (costs) outstrip workers (financers) due to the simple demographics of the first of the baby boomers finally reaching retirement age.
In addition, today’s stagnant economy and high unemployment (and underemployment) numbers mean that fewer people are working, so a system dependent upon every worker’s participation is already stretched to the limit; unemployment is up and wages are plummeting. How on earth is this a time to reduce the collection from the shrinking pool still somewhat gainfully employed?
Fortunately, we know that the investment fund concept is a fiction. The money comes in, and IOUs go out; benefits are really paid out of the general fund. So, perhaps this shouldn’t bother us. If we just stop winking that there’s any investment going on, the fact that the investment has been slashed by a sixth isn’t nearly as disheartening.
If we’re going to break the bank, shouldn’t we spread the pain evenly?
In a desperate ploy to win the support of an ever more skeptical public, politicians of both parties are tempted to use federal tax cuts as a ploy to demonstrate their love of, and service to, as many potential voters as possible.
While this is understandable, it gets harder every year. Non-workers don’t pay income taxes of any kind. Half of America’s workers don’t pay income taxes either, thanks to a decade of tax cuts that brought ever-larger groups of workers down to zero net income tax liability (or even, thanks to the insanity of the “refundable tax credit,” negative income tax liability – a positive payment from the government!).
So, we could cut the income taxes of 100% of income tax payers, and still be unable to do anything directly for the other half of America’s workers. From the perspective of the politician with his eyes on the next election, that’ll never do!
So they scanned just a little further down the paycheck and realized that all the workers pay the Social Security tax, nicknamed the “payroll tax” – so that would be the perfect opportunity to offer a carrot to the largest number of workers – to almost all of them, in fact.
Cutting the Social Security tax a little, back in December 2010, was therefore irresistible to the politicians. It’s a way to help the most people, just a little bit. A way to make the most people think you’ve done something for them, invaluable to a candidate. So if the result helps your poll numbers considerably more than it helps the economy at large, well, that’s a small price to pay, in some people’s opinion.
And this year it’s even easier to accomplish such a PR coup: just refuse to let the temporary tax cut expire! Easy. Especially if you only look at the surface.
Should we take any tax cut, as long as it’s a tax cut?
If taxes are too high – and yes, they are – then the gross tax bite should be reduced. No question about that.
We have an economy in recession, manufacturing in the doldrums, and a leviathan on a spending spree. We need economic growth to increase the revenue needed to feed the beast, and generous tax cuts could conceivably contribute to that desperately needed boom. So as far as that goes, it is indeed tempting to think that any tax cut is a good thing, because lower taxes means less money taken from the economy, more money left in place to enable the private sector to thrive.
Unfortunately, however, there’s more to it than that. While it is true that money left in the private sector helps the economy to grow, there is a difference between which areas most desperately need the help. Reducing the tax burden of those who already pay the least in taxes, the people with the least to spend – with or without the tax break – is arguably sure to produce the least bang for the buck of any of our options.
In deciding which taxes to cut, we need to look at what areas will be most directly and strongly stimulated by the cuts.
Our problems today are of people unable to buy homes, because of massive unemployment. The massive unemployment is largely caused by an inability of businesses to thrive due to the crippling regulations of Washington D.C., and the second highest corporate tax burden in the industrialized world. Businesses cannot compete with foreign manufacturers, which causes factory layoffs and closures, and a ripple effect as the vendors dependent on those manufacturers suffer and close as well.
What this country needs is most certainly not to fatten the poorest workers’ paychecks by an imperceptible two percent. The solution is to fatten their paychecks by ten, or twenty, or fifty percent, not by direct tax cuts, but by getting them raises.
The problem isn’t that these poor workers don’t have two percent more; the problem is that Democratic Party policies keep them from getting a hundred percent more – by denying them the opportunities to advance and improve in their careers that only conservative capitalist policies afford.
Cutting the corporate income tax from the mid-thirties to the high teens or low twenties would do it, by encouraging companies to insource more of their manufacturing and cease the slow steady outsourcing of jobs to more welcoming foreign shores.
Cutting the capital gains tax to ten percent would help, by encouraging individuals and companies to trade investments with less hesitation, providing a more dynamic market.
These changes would create massive growth, not just making up the apparent loss of revenue but starting a cycle of growth, as employees rise in their careers and return to the stepladder of growth that signifies the American way:
When your company can afford to hire more people, its best employees get promotions. When they finally get those long-awaited promotions, they can buy a new house or car, and new investments, or new furniture, or increase their dinner and entertainment budgets. The more that all this occurs, the more the broader economy grows, enriching all who participate in it. In short, the more the economy grows, the more everyone benefits… a heck of lot more than two lousy percent.
This economic fact – most famously stated by John F. Kennedy in his line “a rising tide lifts all boats” – is undeniable, but it nevertheless remains anathema to the Democratic Party of today.
The most important economic fact to Dick Durbin and his cronies in the legislature is this: When a person sees his tax rate drop by two percent a week after his congressman promised it would, he thanks his congressman…
…but when a person gets a ten percent raise, or a promotion, or a new job because of a more favorable tax climate, he thanks his employer.
And to Dick Durbin and the modern American left, that’s simply unacceptable. In the mind of a Dick Durbin or of any other Democrat official, “Not only must we shore up the votes; we must make the people love us, thank us, beg for our favors… and continue to hate the private sector employers unwilling to give us those raises. We must never let the voters realize that it’s our very own Democratic Party policies keeping these voters poor or broke.” (yes, I’m paraphrasing!)
This is why proper tax policy can never be accomplished under Democrat governance. It isn’t just that they deny the reality of economics; it is that they cannot allow the voters to think positively of the business sector. The second the voter realizes that it was government holding back his employer – that it was government’s fault that his employer couldn’t enrich him all those years – the voter’s blind faith in the Democratic Party will be lost forever.
The modern Democrat must actively work to retard economic growth, if he is to save his corrupt and destructive party. And so their whip does so, day after day, speech after speech, email after email.
“The GOP is threatening,” said Durbin, “to throw working families under the bus – again.”
Did we now? Well, it certainly sounds more effective, in this era of the politics of personal destruction, than telling the truth. Because the truth is that it’s the Democrats, and their tax code, their monstrous bureaucracy, and their stifling regulations, that have kept working families under that bus for decades. The American public must never suspect that it’s actually the conservatives who have been trying for so long to free them from that scary and constrictive prison under the bus that never actually even leaves the DNC driveway.
As a majority whip, Senator Durbin may be very effective. Just not as a representative of a struggling people, who desperately try daily to keep their heads above water, who need more than anything else a government that will tell the truth for once, do the right thing, and get out of the way of a private sector that could be their salvation if only it were unleashed.
Copyright 2011 John F. Di Leo
John F. Di Leo is a Chicago-based Customs broker and international trade compliance lecturer. Though an Illinois resident for all but five years of his life, he is proud at least to have been a resident of Wisconsin the year that Dick Durbin was elected to the Senate, so he shares no blame for that particular misfortune, anyway.
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