Congress is now struggling with the expiration of the payroll tax cut of the past year or so. This policy shaved about 2 percentage points off the employee's FICA taxes, allowing typical households to pocket about $1,000 more a year. At year's end, though, if nothing is done, we'll all go back to paying the full 6.2 percent freight on the first $108,000 (approx.) in wages we make. That 6.2 percent, plus an equal amount that employers shell out, is supposed to pay for Social Security.
So, should the tax trim stay in place? Over at US News & World Report, Reason columnist and Mercatus Center economist Veronique de Rugy was asked to debate that question. Here's part of her answer:
Extending the cut on a temporary basis is precisely the sort of half-baked intervention that accomplishes little more than injecting even more uncertainty into an already murky economic situation. Reducing tax rates can help spur investment and job creation, but "temporary" tax cuts never have that effect precisely because producers and consumers know a change is coming soon.
Making the payroll tax cut permanent is a different story, but only if Social Security benefits are cut by the same amount as the reduction in taxes. Remember, in theory, taxes are credited to the Social Security Trust Fund, where they establish the program's authority to pay out benefits to retirees.
As de Rugy notes, the "trust fund" is raided more regularly than a monastery in medieval Ireland. There is technically a trust fund, sure, and there are technically trillions of dollars that the government is on the hook for. And there is virtually no chance that the statesmen and stateswomen currently deciding policy will actually cut current or future benefits in equal measure to foregone revenue now.
But, says de Rugy, maybe the very act of starving the Social Security fund will at least help awaken public consciousness about the flim-flam that is taking place. If Congress yet again extends the payroll tax cut without discussing cutting the benefits those taxes are supposed to pay for, writes de Rugy, this might
expose the fiction that Social Security benefits are fully backed by payroll-tax contributions, and hence, can't be reformed. Social Security is already running a cash-flow deficit, meaning there is not enough money to pay retirees' benefits. With the payroll tax cut extension adding to the program's financial difficulties, it may be the impetus for Congress to pursue fundamental entitlement reform and address the underlying drivers of our debt problem.
Her whole piece, aptly titled "A More Permanent Solution is Needed," is here. It's part of a feature called "Debate Club" and invites reader to vote up or down particular contributions. Go here to see how the various contributors are faring.
Was it really only 10 months ago when former Sen. Alan Simpson (R-Wyo.) laid it all the line regarding Social Security, Snoopy Snoopy Poop Dogg, and The Enema Man?