01-06-2009, 02:42 PM
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Raiding the Lockbox: The hypocrisy of Obama’s tax “cuts”
An IMPORTANT read... 
Raiding the Lockbox: The hypocrisy of Obama’s tax “cuts”
Quote:
Anyone who follows politics will recall the hue and cry that greeted President Bush’s 2005 proposal to allow workers to save a portion of their Social Security payroll taxes in personal accounts. But even many who follow politics today could be forgiven for failing to realize that the incoming Barack Obama administration is, in its stimulus proposal, suggesting something far more radical for Social Security.
For those who don’t recall the specifics of the 2005 debate, let’s refresh the memory. Workers could have saved four percent of their wages, up to a cap of $1000 (rising each year), in Social Security personal accounts. The money would have remained within the broader Social Security system and the accounts administered by the federal government. The money could only be used to fund future retirement benefits, in effect replacing part of an unfunded benefit promise with a funded reality.
Because participation was to be phased in, the amounts of money proposed in 2005 appear modest by the standards of the current economic debate: $30 billion in 2009, $61 B in 2010, and $95 B in 2011. None of this money could have been spent, or diverted to purposes unrelated to funding Social Security benefits.
This 2005 proposal was greeted in superheated tones. The AARP ran television ads comparing even this modest sheltering of payroll taxes with the destruction of someone’s home. The Center on Budget and Policy Priorities warned of dire fiscal consequences, alleging a loss over two decades of $5 trillion from Social Security. Such eye-popping figures were arrived at via a number of assumptions and extrapolations well beyond the specifics of the President’s actual proposal.
Fast forward to 2009. To sell an economic stimulus package, the incoming Obama Administration has urged the passage of what has been termed $300 billion in “tax relief,” including a tax cut for “95% of workers and their families.” When during the 2008 campaign it was pointed out that far less than 95% of Americans actually even pay income taxes, the Obama campaign asserted that there would nevertheless be tax relief in the form of a refund against payroll taxes — in other words, Social Security.
The use of the preposition “against” is a classic example of Washington-speak that confuses the reality of what is being proposed. In this case, the terminology blurs the answer to the question: will workers be receiving a refund of payroll taxes, or not? This bothered me enough to contact an expert on Social Security policy, a friend of mine, who had the same grave concerns about this proposal.
If the answer is “no,” then the proposal is for a spending program, not tax relief, and should be understood as such. If the answer is “yes, workers are receiving a refund of their Social Security payroll taxes,” then a new problem arises. We cannot simultaneously send this money back to taxpayers and deposit it in the Social Security Trust Fund at the same time. One can’t do both without double-counting the money.
Again, hearken back to the 2005 Social Security debate. Then, the Bush Administration did not paper over the reality that money could be invested either in personal accounts, or in the Social Security Trust Fund, but not both. The Bush administration accompanied the proposal with the public release of a memorandum from the Social Security Chief Actuary showing its impact on the Trust Fund.
Critics of Social Security reform had not hesitated to charge the administration in advance with double-counting. In a December, 2004 conference call outlining pre-emptive opposition to President Bush’s anticipated proposal (featuring economic experts who would later advise President-elect Obama), the suggestion even that money would be borrowed to pay for the transition to personal accounts was greeted with derision, including the flippant charge, “You’d go straight to jail, and deservedly so” if such a dastardly thing were tried in the corporate world.
What a difference a few years makes. Now we are talking about potentially diverting far greater annual amounts of payroll taxes, not as a transition to lower Social Security obligations but to induce stimulative consumption separate and apart from Social Security — and, by the way, to increase borrowing far more in the interim. This has been greeted by a singular lack of curiosity about the effects upon Social Security’s finances and accounting integrity.
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Funny how much difference one letter makes... 
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