We all agree that a temporary payroll tax cut without permanently restructuring Social Security, along with its funding source, is a ludicrous idea.  Sadly, Democrats would rather play politics by introducing this inane stimulus measure, in an attempt to get Republicans to vote against a tax cut.

For far too long, the extension of the payroll tax cut was coupled with more entitlement spending, in the form of 99 weeks of unemployment benefits and extension of Medicare ‘doc fix.’  We have long advocated that Republicans should decouple the tax cut from the spending in order to preclude a situation where conservatives, who oppose more entitlement spending, would be forced to vote against a tax cut.  Today, House Republicans announced that they will decouple the two issues and pass a clean payroll tax cut extension until the end of the year.  They are leaving out the entitlement spending extensions and daring Senate Democrats to oppose their clean tax cut – one that they have “championed” for the past few months.

Going forward, Republicans must stand strong against pressure to slip the entitlement spending into the payroll tax cut deal.  Once they are free from the burden of shooting the hostage (the tax cut), they should negotiate hard for the rest of the package.  They should be guided by the following principles:

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We all agree that a temporary payroll tax cut without permanently restructuring Social Security, along with its funding source, is a ludicrous idea.  Sadly, Democrats would rather play politics by introducing this inane stimulus measure, in an attempt to get Republicans to vote against a tax cut.

For far too long, the extension of the payroll tax cut was coupled with more entitlement spending, in the form of 99 weeks of unemployment benefits and extension of Medicare ‘doc fix.’  We have long advocated that Republicans should decouple the tax cut from the spending in order to preclude a situation where conservatives, who oppose more entitlement spending, would be forced to vote against a tax cut.  Today, House Republicans announced that they will decouple the two issues and pass a clean payroll tax cut extension until the end of the year.  They are leaving out the entitlement spending extensions and daring Senate Democrats to oppose their clean tax cut – one that they have “championed” for the past few months.

Going forward, Republicans must stand strong against pressure to slip the entitlement spending into the payroll tax cut deal.  Once they are free from the burden of shooting the hostage (the tax cut), they should negotiate hard for the rest of the package.  They should be guided by the following principles:

Read More →

If the traditional description of the political parties wasn’t evident enough before the payroll tax/UI kerfuffle, it certainly is now: Democrats are evil and Republicans are stupid.  Democrats are evil for insidiously driving up the deficit, perpetuating unemployment, lying about Social Security and passing short-term unworkable Social Security tax holidays for political gain.  Republicans are stupid for a) having Mitch McConnell as Senate Leader and b) coming back to fight the evilness… but then failing to fight it.  They should have outflanked the Democrats on the tax cut and waged a separate battle over Unemployment Insurance (UI).  Instead they begged Democrats to come to conference with them, a losing proposition from day one.

Undoubtedly, there is a lot of blame to go around, with the lion’s share going to Mitch McConnell.  However, the important thing is to forge a strategy going forward into next year.

While everyone is focused on the payroll tax part of the deal, Democrats are quietly getting what they wanted vis-à-vis the UI program.

We were all aghast with indignation last year when we found out that an unprecedented 99 weeks of UI was inserted into the deal that extended the Bush taxes.  We kicked ourselves for allowing that travesty to pass and promised never to let it happen again.  Unfortunately, GOP leaders waited until it was too late to formulate a coherent principled stance against the entire premise of extending UI welfare.  They made a compromise to extend the long-term benefits, but gradually reduce eligibility by 40 weeks.  And, by George, it would be paid for.

Well, now that we foolishly agreed to tie UI benefits to the payroll tax issue, the fate of the UI extension is inexorably tied to the fate of the payroll tax cut.  Consequently, we will get the full 99 weeks in perpetuity…and it won’t be paid for.  If we were like Democrats, who put political gain ahead of country, we might be cheering the ancillary fact that this deal will help perpetuate unemployment and hamper Obama’s reelection efforts.  Another ancillary benefit of this payroll tax brouhaha is that Democrats will have no leg to stand on when they try to let the Bush tax cuts expire.

Unfortunately, ancillary benefits are all we have from this deal.

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If the traditional description of the political parties wasn’t evident enough before the payroll tax/UI kerfuffle, it certainly is now: Democrats are evil and Republicans are stupid.  Democrats are evil for insidiously driving up the deficit, perpetuating unemployment, lying about Social Security and passing short-term unworkable Social Security tax holidays for political gain.  Republicans are stupid for a) having Mitch McConnell as Senate Leader and b) coming back to fight the evilness… but then failing to fight it.  They should have outflanked the Democrats on the tax cut and waged a separate battle over Unemployment Insurance (UI).  Instead they begged Democrats to come to conference with them, a losing proposition from day one.

Undoubtedly, there is a lot of blame to go around, with the lion’s share going to Mitch McConnell.  However, the important thing is to forge a strategy going forward into next year.

While everyone is focused on the payroll tax part of the deal, Democrats are quietly getting what they wanted vis-à-vis the UI program.

We were all aghast with indignation last year when we found out that an unprecedented 99 weeks of UI was inserted into the deal that extended the Bush taxes.  We kicked ourselves for allowing that travesty to pass and promised never to let it happen again.  Unfortunately, GOP leaders waited until it was too late to formulate a coherent principled stance against the entire premise of extending UI welfare.  They made a compromise to extend the long-term benefits, but gradually reduce eligibility by 40 weeks.  And, by George, it would be paid for.

Well, now that we foolishly agreed to tie UI benefits to the payroll tax issue, the fate of the UI extension is inexorably tied to the fate of the payroll tax cut.  Consequently, we will get the full 99 weeks in perpetuity…and it won’t be paid for.  If we were like Democrats, who put political gain ahead of country, we might be cheering the ancillary fact that this deal will help perpetuate unemployment and hamper Obama’s reelection efforts.  Another ancillary benefit of this payroll tax brouhaha is that Democrats will have no leg to stand on when they try to let the Bush tax cuts expire.

Unfortunately, ancillary benefits are all we have from this deal.

Read More →

1 – Should it be called a Tax Cut?

YES

If we believe the Social Security claim of the last 75 years, what Congress is talking about is reducing the amount of your paycheck that is contributed to the federal Old-Age, Survivors, and Disability Insurance (OASDI) program.  Most people see this as a ‘lock box’, where we are putting away money to be taken out when we retire.  If this were the case then it is really not a tax at all but what you might call a forced savings program.

In reality, Social Security is a pay-as-you-go system, where deductions from employees and payments by employers are used to fund all the Social Security obligations.  Any money not needed is put back into general use by the government in exchange for special government securities that are put into the Social Security Trust Fund.  By 2017 or so the amount collected will no longer cover the expenses and we will have to start ‘redeeming’ some of these securities.  So, in that respect, it is a tax cut.

2 – Will this reduce the benefits you receive when you retire?

NO

To answer this I had to figure out how Social Security benefits are calculated.  Here is the basic math.

You receive “credits” for salary that you receive.  In 2011 you receive one credit for each $1,120 of wages.  The most credits you can receive each year is 4, so by the time you have been paid $4,480 you have maxed out your credits for the year.  You must receive 40 credits to be eligible for Social Security benefits.

Once you are eligible, the Social Security Administration (SSA) looks at 35 years of your salary history.  They take the highest Taxed Social Security earnings that were reported to the IRS on your W-2 each year (which may not be the total amount of your paycheck) add it up and divide by 35.  If you have not worked 35 years then they fill in the missing years with ’0′.  This number gets divided by 12, reduced by a very complicated formula, and the result is your monthly benefit if you retire at age 67.  So the fact that the SSA takes out less money will not affect this calculation.

3 – Does the cut affect the employer’s contribution?

NO (it didn’t in 2011)

Many people don’t realize that while you ‘contribute’ up to 6.2% of your income into Social Security you employer does the same.  This means that 12.4% of your gross salary (from your employer’s point of view) is going to the SSA, with 1/2 showing up as a deduction on your paycheck and 1/2 being shouldered by your boss.  The portion taken out for Medicare (you and your employer both contribute to this as well) and the portion your employer contributes remains untouched.

4 – Will this cut affect the solvency of Social Security?

Not really

We all know that Social Security is a sinking ship, but this little hit probably won’t make it sink any faster.  The bill includes a “pay for it” provision increasing fees associated with mortgages backed by Fannie Mae and Freddie Mac – but if you read the bill the money collected “… shall be deposited directly into the United States Treasury.”  I don’t see how this helps the SSA.  What is worse, the additional fees are in place through October 1, 2021.  Hurray – Congress has found another way to tax us.

5 – Will the payroll tax cut only last two months?

Probably NO

Two reasons.  First, Congress says they want to extend it for two months so they can fix it when they come back (at the end of January) to last for all of 2012.  Second, there are huge problems for accountants and payroll companies with having a tax rate change for only two months.  All taxes (including payroll taxes) are computed quarterly, and all tax software is set up to handle this three month tax window.  Nobody really knows how to handle a tax rate that changes within the quarter.

There are two inexorable political realities at this point: the payroll tax cut must be extended and those who block it will incur a needless political reprisal.  To that end, Republicans must outflank the Democrats on the payroll tax cut, while dealing with the entitlement extensions in another bill.

As conservatives, we all agree that a short-term payroll tax holiday – without Social Security reform – is inane policy, both in the realm of economic growth and entitlement reform.  We should have either categorically opposed a Keynesian stimulus holiday by calling out the Democrats for their hypocrisy on Social Security, or we should have outflanked the Democrats and called for a permanent diversion of the payroll tax to private retirement accounts.  Unfortunately, the ship already sailed on that a long time ago.  As the Wall Street Journal noted,” if Republicans didn’t want to extend the payroll tax cut on the merits, then they should have put together a strategy and the arguments for defeating it and explained why.”

Republican leaders already agreed to another “holiday,” albeit with the condition that it be paid for.  With less than two weeks to go before its expiration and with a universal expectation that it will be extended, Republicans must pass a clean extension of the payroll tax cut.  Anything less would enable the Democrats to get to the right of Republicans on tax cutting.

Last week, Republicans secured superior leverage by becoming the first body to actually pass an extension, while the Senate was unable to pass its own bill.  However, Mitch McConnell launched a broadside on his party by agreeing to a lousy two month extension – one that is totally unworkable in the real world.  Nevertheless, its 89-10 margin of support gave Democrats all the leverage they needed.  Now House Republicans are begging Democrats to join them in a conference agreement to iron out the discrepancies between the two bodies.  But this is only playing into the narrative that Republicans are the ones who are obstructing the “only” plan to extend the tax cut.  House leaders are justified in their outrage towards the Senate, but we need to focus on current strategy.  [We can talk about canning McConnell another time.]  Their current strategy of asking for a conference will get them nowhere and will only hurt them.

This is why, for the last time, I call on House Republicans to pass a clean 12-month extension without any strings attached; no riders, reforms, offsets, and extraneous extensions attached.  That will totally put the ball back in the Democrats’ court, forcing them to support or reject the only workable extension plan.  What about the offsets and Keystone pipeline provision?

Here’s the kicker:

Read More →

There are two inexorable political realities at this point: the payroll tax cut must be extended and those who block it will incur a needless political reprisal.  To that end, Republicans must outflank the Democrats on the payroll tax cut, while dealing with the entitlement extensions in another bill.

As conservatives, we all agree that a short-term payroll tax holiday – without Social Security reform – is inane policy, both in the realm of economic growth and entitlement reform.  We should have either categorically opposed a Keynesian stimulus holiday by calling out the Democrats for their hypocrisy on Social Security, or we should have outflanked the Democrats and called for a permanent diversion of the payroll tax to private retirement accounts.  Unfortunately, the ship already sailed on that a long time ago.  As the Wall Street Journal noted,” if Republicans didn’t want to extend the payroll tax cut on the merits, then they should have put together a strategy and the arguments for defeating it and explained why.”

Republican leaders already agreed to another “holiday,” albeit with the condition that it be paid for.  With less than two weeks to go before its expiration and with a universal expectation that it will be extended, Republicans must pass a clean extension of the payroll tax cut.  Anything less would enable the Democrats to get to the right of Republicans on tax cutting.

Last week, Republicans secured superior leverage by becoming the first body to actually pass an extension, while the Senate was unable to pass its own bill.  However, Mitch McConnell launched a broadside on his party by agreeing to a lousy two month extension – one that is totally unworkable in the real world.  Nevertheless, its 89-10 margin of support gave Democrats all the leverage they needed.  Now House Republicans are begging Democrats to join them in a conference agreement to iron out the discrepancies between the two bodies.  But this is only playing into the narrative that Republicans are the ones who are obstructing the “only” plan to extend the tax cut.  House leaders are justified in their outrage towards the Senate, but we need to focus on current strategy.  [We can talk about canning McConnell another time.]  Their current strategy of asking for a conference will get them nowhere and will only hurt them.

This is why, for the last time, I call on House Republicans to pass a clean 12-month extension without any strings attached; no riders, reforms, offsets, and extraneous extensions attached.  That will totally put the ball back in the Democrats’ court, forcing them to support or reject the only workable extension plan.  What about the offsets and Keystone pipeline provision?

Here’s the kicker:

Read More →

If I had voted for a bill that not only screwed my party, but also screwed the country, I would keep a low profile.  If I had passed a bill that was unworkable for businesses and helped preserve the entities that precipitated the housing crisis, I wouldn’t show my face in public for a while.  Evidently, there are five GOP senators, some of which have flirted with “No Labels,” who are unfazed by their vote for McConnell’s pathetic extenders package.  Worse, they are demanding that the House join them in helping their own reelection prospects at the expense of the rest of the country.

This, from CQ:

Republicans Scott Brown of Massachusetts, Dean Heller of Nevada, Richard G. Lugar of Indiana and Olympia J. Snowe and Susan Collins of Maine called on the House to change course, which Senate Democrats are gleefully noting. [...]

“I’m hopeful, maybe without basis, the House of Representatives will pass the bill the Senate passed and it will do so tonight,” Lugar said on MSNBC on Monday. “I’m hopeful that our majority, Republicans and Democrats today, will proceed, because it seems to me this is best for the country as well as for all the individuals who are affected.”

Snowe told Maine’s Portland Press Herald that it was “paramount at this point” that the payroll tax cut not lapse. Collins added, “At this point, we must act, as the Senate has done, to prevent a tax increase that will otherwise occur on Jan. 1.”

Heller said in a statement that [“There is no question we need to extend the payroll tax cut and unemployment insurance for the entire year..."]“there is no reason to hold up the short-term extension while a more comprehensive deal is being worked out.” Heller is set to face Rep. Shelly Berkley, D-Nev., in a close race next year.

“The House Republicans’ plan to scuttle the deal to help middle-class families is irresponsible and wrong,” Brown said in a statement. “The refusal to compromise now threatens to increase taxes on hard-working Americans and stop unemployment benefits for those out of work.”

Blocking a two-month extension that is untenable for payroll processors is “irresponsible,” Senator Brown?  Really?  You can’t think of any reason to hold up a short-term extension, Senator Heller?  We need another 99-wees of unemployment together with a tax cut, really?  This is really the best thing for the country, Mr. Lugar?  Or is this the best thing for your reelection?

The best thing for the country is to remove some of these political hacks, who hypocritically place their political ambitions ahead of the good of the country.

We can start by helping out Lugar’s primary opponent.

If I had voted for a bill that not only screwed my party, but also screwed the country, I would keep a low profile.  If I had passed a bill that was unworkable for businesses and helped preserve the entities that precipitated the housing crisis, I wouldn’t show my face in public for a while.  Evidently, there are five GOP senators, some of which have flirted with “No Labels,” who are unfazed by their vote for McConnell’s pathetic extenders package.  Worse, they are demanding that the House join them in helping their own reelection prospects at the expense of the rest of the country.

This, from CQ:

Republicans Scott Brown of Massachusetts, Dean Heller of Nevada, Richard G. Lugar of Indiana and Olympia J. Snowe and Susan Collins of Maine called on the House to change course, which Senate Democrats are gleefully noting. [...]

“I’m hopeful, maybe without basis, the House of Representatives will pass the bill the Senate passed and it will do so tonight,” Lugar said on MSNBC on Monday. “I’m hopeful that our majority, Republicans and Democrats today, will proceed, because it seems to me this is best for the country as well as for all the individuals who are affected.”

Snowe told Maine’s Portland Press Herald that it was “paramount at this point” that the payroll tax cut not lapse. Collins added, “At this point, we must act, as the Senate has done, to prevent a tax increase that will otherwise occur on Jan. 1.”

Heller said in a statement that [“There is no question we need to extend the payroll tax cut and unemployment insurance for the entire year..."]“there is no reason to hold up the short-term extension while a more comprehensive deal is being worked out.” Heller is set to face Rep. Shelly Berkley, D-Nev., in a close race next year.

“The House Republicans’ plan to scuttle the deal to help middle-class families is irresponsible and wrong,” Brown said in a statement. “The refusal to compromise now threatens to increase taxes on hard-working Americans and stop unemployment benefits for those out of work.”

Blocking a two-month extension that is untenable for payroll processors is “irresponsible,” Senator Brown?  Really?  You can’t think of any reason to hold up a short-term extension, Senator Heller?  We need another 99-wees of unemployment together with a tax cut, really?  This is really the best thing for the country, Mr. Lugar?  Or is this the best thing for your reelection?

The best thing for the country is to remove some of these political hacks, who hypocritically place their political ambitions ahead of the good of the country.

We can start by helping out Lugar’s primary opponent.

The Senate-passed payroll tax cut extenders package was already on the ropes with House Republicans over the weekend.  The bill (HR 3630) offers a pathetic two-month extension of the payroll tax cut.  In addition, it extends long-term unemployment benefits for the ninth time, along with the annual Medicare doc fix.  The bill gutted all House-passed reforms to medicare and unemployment insurance, while offsetting the cost through phantom revenue increases generated through Freddie and Fannie.  Reliance on these fees for spending offsets will actually make it more difficult to close down these harmful entities.

Today, we are discovering two more problems with the Senate package:

1) Earlier today, Senators Brown, Heller, and Lugar blasted House Republicans for holding up the short-term deal.  “There is no reason to hold up the short-term extension while a more comprehensive deal is being worked out,”cried Heller.  Well, here is a good reason.

Aside for the obvious vices of a two-month payroll tax extension, this tenuous law will make life difficult for providers of payroll processing services.  Section 101 of the legislation establishes a new Social Security Taxable Wage limit of $18,350.  All wages in excess of $18,350 for January and February will be taxed at the old rate of 6.2%.  This provision was inserted in order to preclude those with high incomes from meeting their full payroll tax obligation during the first two months.  Such an eventuality would create a disparity in which middle-income earners, who would still incur a payroll tax liability after February, would pay a higher rate (6.2%) on the rest of their income than high-income earners would have to pay.  Many high-income earners receive large bonuses at the beginning of the year, and Democrats were not about to let them take advantage of this short-term payroll tax cut.

Now, the National Payroll Reporting Consortium (NPRC), a trade association representing payroll processing companies, is charging that this provision is untenable.  Such a drastic change would force payroll processors to implement significant changes to their program software.  In a letter sent to the chairmen of the tax-writing committees obtained by Jake Tapper, NPRC’s president warns that there is not enough time to implement these changes before January.

A full 12-month extension would obviate the need for this wage limit, thereby sparing payroll processors the two-month headache.  Unfortunately, Senator Brown excoriated House Republicans for fighting the Senate bill, calling their “plan to scuttle the deal to help middle-class families” “irresponsible and wrong.”  The only thing irresponsible and wrong was his vote for an inane two-month extension.

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