Dr. J –
The “payroll tax” cut has been phony baloney from the get-go.
For starts, why did everyone persist in calling it the “payroll tax?” Because if you called it a Social Security tax cut, people would start asking unpleasant questions, like, “How come they’re cutting the Social Security tax at the same time they’re telling us Social Security is going broke? Isn't this going to make it go broke even faster?”
That’s the phony part.
The ugly part is this:
The smart guys in Congress had that problem covered. The money that the so-called Social Security trust fund was losing to the tax cut was replaced by “general revenue.”
“General revenue” is ordinary income tax revenue, the kind the IRS gets out of your paycheck every week, and gets a little more of (or refunds some of) every April 15.
No problem, then, right?
Well, here's the problem, which starts with a little digression:
We all know that almost fifty percent of all households pay no federal income tax, or get all the tax they paid refunded. A lot of people – most of them taxpayers – think this is wrong. Half the country doesn't pay for aircraft carriers, public highways, veterans' hospitals, food and drug inspectors, TSA agents, environmental protection, bank and securities regulations, and on and on.
“Don't be such a hater,” the non-haters reply. “Maybe they don't pay income tax, but they pay Social Security tax, so stop complaining.” (I hear this argument all the time, from people who are actually permitted to vote and to breed.)
Yes, they do pay Social Security tax, if they're working. But during the “payroll tax” reduction years, they paid 32% less Social Security tax than they did before. So the difference was made up by “general revenue,” or, in other words, more taxes on the people who do pay income tax.
So we had a Social Security tax cut for everyone who had a job, which was then paid for by the half of the population that pays income taxes.
In other words, half the population paid 32% of the Social Security tax of the other half (yes, there’s some overlap of those two groups there, but you see the idea).
“Well, they can afford it, so why shouldn't they?” you hear from the Occupy Wall Street crowd. Well, lots of things, starting with the fact that it turns Social Security into a welfare program - money the government takes from you to give to someone else, not because they have earned it, but simply because they need it.
Millionaires generally don't get food stamps. They don't generally get public housing (the president and governors are the only exceptions that comes readily to mind). They don't get Medicaid (medical assistance for the needy, not to be confused with Medicare). And they don't get Supplemental Security Income (cash payments to needy aged, blind, or disabled people, not to be confused with Social Security).
They don't get any of these things, because those benefits are based on financial need. The money doesn't come from your IRA, or your ex-employer's pension fund. You get them, from the government (i.e. from other taxpayers) simply because you would otherwise be homeless or would starve or would sicken and die.
Social Security, on the other hand, once was paid to rich and poor, once they'd stopped working, and the amount they received was based on what they had paid in Social Security taxes over their working lives. But now you hear politicians on both the right and the left saying that one of the things we'll probably need to do to save Social Security is to “means-test” it. In English, that means, if your income is too high, or your savings are too high, your Social Security check will be reduced. Or maybe cut out entirely. Social Security will be exactly like food stamps and welfare - based on financial need and paid by the wealthy, to the poor.
How does that make Social Security any different from welfare?