Now that the Super Committee has failed to come up with a plan, my blog could be running short of easy fodder.
However, the debt never sleeps and nor should I!
Congress has returned for a brief session before breaking for Christmas, and the first thing on their list is to decide whether or not to extend the payroll taxes cuts.
These payroll tax cuts reduce the amount of money that workers put into Social Security from each paycheck. Essentially, it decreases the amount of money put into Social Security and lets Americans keep that money in their pocket.
As it stands now, the cuts put about $1000 back into average American households.
Sounds good? Well, it is and it isn't.
Limiting the amount of money put into the Social Security trust fund (which is WAY more complicated than I thought, but I will do my best) does a couple of things. The government borrows money from the Social Security fund to pay for things, which means it accrues debt that is owed to the trust fund. The less money in that fund, the less money that can be borrowed from Social Security when needed (OK, no politician is going to make that argument, but that's one of the deals).
An argument they will make? Having less money in Social Security over a longer period of time could mean decreases in Social Security payments or (a lot more far-fetched) the collapse of Social Security (this would happen if population and its payments began to outpace the payments made by Social Security). Couple in less workers in the workforce (now I'm getting nitpicky) and it could add up against Social Security.
Having these payroll taxes does increase the amount of money in our pockets and that does help the economy by allowing us to spend. It also may promote more savings if pockets are flush with a few extra dollars. The trade-off? The lower tax still means you are paying less into Social Security. Sure, the IRS says you are still guaranteed by law your Social Security checks, but you aren't helping your retirement by spending that extra G on an iPad or North Face jackets.
Our politicians have to decide if they want to keep these tax cuts (Democrats do) or let them expire (Republicans do).
If the economy wasn't on a borderline recession, I would say let the tax cuts expire. Paying a bit extra into Social Security will make sure (hopefully) the system will be available for our generation and our children. However, we are on a borderline recession and letting the public have extra money in their pocket is more important (at the moment).
So it seems like a no brainer for me and you would think Republicans would be behind the whole tax cuts thing, right?
NOPE!
They want to let the tax cuts expire because they say the "nation can't afford it." Yes we can afford it. We have been affording the Bush Tax cuts for the last 11 years, which typically benefits the wealthy and add to the federal deficit. However, in a brilliant move of levergae (and Democrat weakness) the Republicans will be allowing the payroll tax cut extension to go through, but they will probably get another wealthy American tax cut or get the XML pipeline approved.
These cuts will pass and Republicans will get a little deal in the process. I have to admit, I don't like the idea of the Republicans getting anything (when they take the hypocritical stance of never raising taxes, but then saying these payroll taxes are too much).
It is the right move but the wrong people in Washington will benefit. Oh well, at least I will have an extra hundred bucks or so in my pocket.
Do you think the cuts should be extended?
I think they should because, it's like you said, Americans need money NOW. I'm not saying to put a band aid on the whole problem, but a little bit of relief now while maintaining the search for a solution in the forefront of our mind is the best compromise for the American people. I agree, it's ironic that the Republicans were all for their tax cuts, but won't support these? Why? Is it because they're Democrat generated? Often I feel like our politicians are a bunch of children.
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