Tuesday, December 14, 2010

Tax Cut "Compromise" Update

            The mantra from the Senate that Obama’s ‘compromise’ tax cut bill does not fully satisfy either side is pure baloney.   Make no mistake - Republicans who have been stalking Social Security for years got their proverbial foot in the proverbial door.

            Established by President Franklin D. Roosevelt in 1935, the Social Security Trust Fund which saw an increase of $2.5 trillion since 1980  is totally funded by worker contributions.  While the Trust Fund is expected to be solvent until 2037, former Rep, Barbara Kenneally of the National Committee to Preserve Social Security and Medicare, says that Obama’s deal marks the “beginning of the end of Social Security as we know it.”

            Perhaps the most serious challenge ever to the 48 million Americans who receive an average Social Security payment of $979 monthly is how Obama structured the deal with Republicans.  By reducing the Social Security portion of the payroll tax by  2%, the U.S. General Fund will be required to transfer over $110 billion to the Trust Fund to make up for lost tax revenues.   The practical effect of mixing heretofore unavailable General Fund revenues is that Social Security will now be considered a drain on the budget and thereby eligible for the chopping block.

            The President has promised that the 2% payroll tax will be for a one year period but, after the pain of observing Obama’s capitulation, does anyone seriously expect him to go to the wall next year when he failed to do so this year and with a Republican dominated House, how will the Social Security portion of the  payroll tax be restored next year when the Republicans will surely define restoration as a tax increase.

            What the beltway media has not reported is that the poorest working Americans, those earning $20,000 or less, will be the only group to see a tax increase.  According to David Cay Johnston, author of “Free Lunch” and Syracuse University professor, Obama’s deal with Sen. McConnell (Ky.) will eliminate the ‘Making Work Pay’ tax credit program which provided an $800 benefit for couples and $400 for each individual.   The elimination of Making Work Pay will affect 45 million households representing 150 million individuals who will pay more taxes.

            While Obama’s ‘compromise’ will provide benefits to 2 million unemployed Americans for 13 months, millions of others whose benefits have expired are left to scrounge for themselves.  Unemployment insurance is another 75 year old program as part of FDR’s New Deal and is funded totally by employers who pay a tax on employee wages.  In 13 months, will Obama be more responsive than today when the House will be in Republican hands and the Republican minority in the Senate continues to rule the roost.            

            Since Obama’s skill as a negotiator are obviously lacking, it’s probably a good thing he was a community organizer and not a labor union mediator. 

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