Payroll Tax Cut Another Cynical Vote-Buying Gesture

Payroll Tax Cut Another Cynical Vote-Buying Gesture

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

When the federal government’s accumulated debt already tops $15.4 trillion, another $101 billion this year may not sound like much.

And when Social Security has a $21.4 trillion unfunded liability--the difference between all taxes that will be paid and all benefits received over the lifetimes of everyone in the system now--I suppose $101 billion doesn’t look like much.

But for every camel there is a straw that will break its back. How many billions can be piled on the backs of businesses and individuals before we snap?

The decision to extend the cut in the payroll tax that funds Social Security moves us closer to the day we find out. That cut is expected to add $101.1 billion to the federal debt in the current fiscal year, according to the Congressional Budget Office. The deal also includes more spending on unemployment benefits.

Social Security is a vast income redistribution scheme that takes money from working people and sends it to retired people. But because it has the power of government--meaning the threat of prison and state-okayed violence to force people into the system--it’s lasted a long time.

I vividly remember when Social Security was on the verge of collapse nearly 30 years ago. President Ronald Reagan, nearly a patron saint to many conservatives, helped engineer one of the biggest thefts in world history to “save” Social Security. Instead of trying to reform or unwind the dying system, he signed off on a huge increase in the payroll tax which, among other things, required higher-income beneficiaries to pay tax on part of their benefits, and required the self-employed to pay the full payroll tax rather than just the portion normally paid by employees.

The result was nearly three decades in which Social Security collected more than was needed to pay benefits. The Social Security “surplus” was supposed to be set aside and grow into an Everest-sized mountain of money to pay for the benefits of future retirees.

It didn’t happen. Now the Baby Boomers are retiring, and the federal Leviathan has spent the money we were promised would be there for us. The Treasury Department owes Social Security some $2.6 trillion for it, and Social Security began paying out more in benefits than it collected in taxes in 2010. The additional shortfall in Social Security revenue the payroll tax cut will cause is to be repaid from general revenues.

The source of money for both the Treasury and Social Security, of course, is current taxpayers. So Social Security is sucking money out of the pockets of working people in two ways--through the payroll tax that is supposed to fund the program, and through general revenues such as the income tax.

It’s a cynical scheme to buy the votes of retirees by shoveling them money collected from working people, while buying the votes of working people by extending them a tax cut.

Most workers will be happy about the cut, of course. But it means more government debt. Soon it will force cuts in government services, further tax increases, or inflationary money-printing.

But that’s in a future beyond the next election, an abstraction that concerns few politicians.


Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute.

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)