Saturday, September 15, 2012
Have you ever wished you could see into the future? Do you wish you could prevent tragedies before they occur? What if you could warn about it before it happens? What if you could tell the captain of the Titanic to watch out for the iceberg? Or warn the airlines before the 9/11 hijackers got on board? Wouldn’t that be wonderful?
Of course, you don’t want to be chicken little yelling that the sky is falling. Plenty of would-be prophets have done that through the years. I’m not in the business of prognosticating. I’m neither a professional economist nor a member of the government with responsibility to warn about these issues. With congress seemingly unable to even develop a budget -- there’s been none from the Senate for about ten years, and president’s budgets often claimed to be “dead on arrival” on capital hill, who am I to sound the warning.
I’m personally not tied to either political party. I think the Democrats are the raise taxes and raise spending party and the Republicans are the cut taxes and raise spending party. Not a lot of difference to me. Neither party seems to have a clue about a balanced budget or prioritizing spending. I think, basically, all they do is buy votes and kiss the backsides of lobbyists.
It seems that the folks in Washington live in a dream world where we can just keep on borrowing and spending and there will never be a reckoning. I think the reckoning is coming, and it’s coming soon. I even know the date: Jan. 1, 2013.
Maybe it’s just the advantage of having the best congress money can buy. I don’t hire any lobbyist, nor do I contribute millions to re-election campaign or bundle the contributions from my millionaire buddies and corporate captains.
So who will listen to me? I’m just a little chicken shouting about the sky. What do I know?
I do know how to add, and I read the papers now and then and go to a few web sites, and things seem obvious to me. We are currently mired in what I call the “Great Recession.” Things have been out of kilter for several years. One statistic, the unemployment numbers, is enough to arrive at that conclusion. I have friends and family that have lost their jobs and are struggling to find another. Unemployment benefits have been extended again and again, and all measures of suffering from food banks to foreclosed houses show things are about as bad as they’ve been since the great Depression of the twenties and thirties.
Of course, economists, like generals, are always fighting the last war. There are lessons from the great depression and one lesson is about the impact of taxes. It is probably good economics to cut taxes during a recession, and never good to raise taxes.
Or is it? In our modern society I’m not sure. With half of the GDP in government spending, maybe raising taxes would fund more government employment and save us from ourselves. Or, maybe we need lower taxes to increase personal spending. It is a lot, lot more complicated than that, but taxes are a major lever used by government to regulate the economy and to get ourselves out of this mess -- as well as to get themselves re-elected.
We’ve had bailouts and buyouts and tax holidays all suggested and implemented over the last four years. I’ve spoken before about my concern with the current Social Security tax holiday. It was implemented in 2011 as a temporary measure with the idea that the extra money in the pockets of all people who are earning a wage will both reduce suffering by those that are being squeezed financially and would improve the economy. Who couldn’t use some extra money? And, second, it should increase spending and stop the downward spiral of job losses as these extra customers drive corporations to increase hiring. Sounds like a good plan. Or does it?
Certainly the so-called payroll taxes are a big hit on the lowest earners in our nation. Economists call it the “marginal propensity to consume (spend).” That means that poor people are much more likely to spend any extra money the government can put in their pockets than, say, the RICH. I’ve heard all the “tax the rich” rhetoric and you won’t get any complaints from me. The richest 2% of this country are doing quite well in this downturn, and they can afford to pay a little more for the privilege of being rich in America. Perhaps the argument should be about how much more, but many won’t accept any tax increase for the highest bracket earners. And don't tell me about closing the loop-holes. It seems to me that all changes in the tax code just create more loop-holes. I remember back in the 70's when congress put a big tax on luxury boats --yachts. All it did in the long run was cause a lot of ordinary people who built the yachts to lose their jobs.
Of course, we all love a tax on someone else, and even some of the rich have stated they should pay a little more. I don’t hear anyone saying how much more, but that’s another issue. Further, even if you took all the money made by the rich, you won’t solve our current financial problems. But that isn’t what I want to talk about.
Like I said, I would like to be the first to give the warning. It turns out that Senator Tom Harkin, D-Iowa, beat me to it. Last week, when the latest payroll tax cut was approved, he voted no and stated, “This Congress will be making a grave mistake -- a grave mistake -- and reinforcing a dangerous precedent," Harkin said in a dramatic Senate floor speech late Thursday. "And I’m dismayed that Democrats, including a Democratic president and a Democratic vice president, have proposed this, and are willing to sign off on a deal that could begin the unraveling of Social Security." "It's a devil's deal."
He went on to say, "Make no mistake about it. American people, make no mistake about it. This is the beginning of the end of the sanctity of Social Security."
Is Tom right? Is this the beginning of the end of Social Security? And is it a Democrat congress that will cause that end.
I too am very worried about extending the Social Security tax cut “holiday” for another full year. What started out as a one year, temporary measure has now been extended to two years. It is becoming a habit. And habits are like comfortable beds, easy to get into, but very hard to get out of. So, will we extend the tax cut again next year?
Why am I so concerned about extending a tax cut? I thought everyone loved tax cuts. Well, it is complicated, but remember this money is being paid to the Social Security fund. All I’ve heard for the last forty years is how that fund is in trouble. The baby boomers -- your truly -- were gong to “bust” the fund. Why, since the 70’s we’ve even paid extra into the fund to build up a surplus. Yet accountants and economists tell us it will run out of money soon. The only question is when.
So how can it be good to cut the income to the fund? Maybe for one year as an emergency measure to try to improve the economy or to help out people in need. But two years. Three years. When will it end?
Oh, you say, you’re panicking. We’ll restore the tax at the end of the year. Really? Do you know what is coming at the end of this year?
I wrote two short articles a while back where I actually argued both sides of the payroll tax cut idea. Now I’m starting to take the negative approach, and I believe the recently approved extension of the tax break on FICA was a mistake. Following are excerpt borrowed heavily from a Washington Post report on TAXMAGEDDON, a catchy name for what will occur on January, 2013 if no further changes or extensions or modifications of the tax laws occur. And, since this is a presidential election year, don’t expect congress to do a damn thing!
With Congress voting last week to extend the payroll tax holiday, 160 million workers will be spared an immediate tax hike. But the move leaves them facing an even bigger hit in January, when the holiday ends and the payroll tax joins a long list of levies already set to sharply and abruptly go up.
On Dec. 31, the Bush-era tax cuts are scheduled to expire, raising rates on investment income, estates and gifts, and earnings at all levels. Overnight, the marriage penalty for joint filers will spring back to life, the value of the child credit will drop from $1,000 to $500, and the rate everyone pays on the first $8,700 of wages will jump from 10 percent to 15 percent.
You did know all that, didn’t you?
The Social Security payroll tax will pop back up to 6.2 percent from 4.2 percent under the deal approved recently by Congress. And new Medicare taxes enacted as part of President Obama’s health-care initiative will for the first time strike high-income households.
The potential shock to the nation’s pocketbook is so enormous, congressional aides have dubbed it “Taxmageddon.” Some economists say it could push the fragile U.S. economy back into recession, particularly if automatic cuts to federal agencies, also set for January, are permitted to take effect.
Obama and congressional Republicans say they hope to avert the coming blow, which stands to suck roughly $500 billion out of the economy in 2013. But both sides are bracing for another epic showdown in the weeks after the November election, as Democrats prepare to use Taxmageddon to break the partisan impasse over taxes that has blocked action on an array of issues, from modernizing the nation’s infrastructure to taming the national debt.
Since they took control of the House last year, congressional Republicans have needed nothing from Obama. They were the holdouts, demanding big cuts in federal spending in exchange for helping Obama keep the government open and raise the legal limit on government borrowing, known as the debt ceiling.
But in December, deadlock will cut the other way. Republicans need Obama if they want to prevent one of the biggest tax increases in U.S. history -- nearly $5 trillion over the next decade, by official estimates -- and block deep cuts to the Pentagon that could be triggered as part of last summer’s debt-ceiling accord.
The tax shock is set to occur after the Nov. 6 election but before the new Congress -- and potentially a new president -- take office two months later. While the outcome of the contest is likely to color the tax debate, Obama will either be freshly reelected or on his way out and, therefore, free to play hardball with Congress.
White House officials say Obama will not sign another full extension of the Bush tax cuts, as he did in December 2010. Obama is demanding a partial extension that would preserve the cuts for middle-class taxpayers but permit rates to rise on household income over $250,000.
Many Republicans and outside analysts say they doubt Obama would make good on his veto threat. Allowing all of the Bush tax cuts to expire would harm middle-class taxpayers, along with the wealthy, and carry grave risks for the economy.
“My forecast is that tax rates are not going to rise for everyone on January 1, 2013,” said Mark Zandi, chief economist for Moody’s Analytics, who predicted that Taxmageddon, combined with the cuts from the debt-ceiling deal, would slash economic growth by nearly three percentage points next year. “That would be pretty difficult for the economy to overcome.”
Still, Democratic spines may be stiffened by polls showing broad support for their latest tax strategy, which emphasizes higher taxes for millionaires rather than the merely well-off. A recent Washington Post-ABC News poll found that 72 percent of Americans support raising taxes on people with incomes over $1 million a year, in line with Obama’s call for a “Buffett Rule” that would require those families to pay an effective tax rate of at least 30 percent.
Many Republicans maintain that they would never raise taxes on a group the GOP views as small-business owners and “job creators.” Besides, Republican strategists said, they are likely to have bargaining chips of their own in December.
For instance, without congressional action, nearly 30 million families will have to pay the alternative minimum tax, which adds thousands of dollars to the average tax bill, in April 2013. Congress typically protects those people through annual adjustments, and the latest “AMT patch” expired in December.
Another potential GOP tactical advantage: the debt ceiling. Treasury Secretary Timothy F. Geithner acknowledged in congressional testimony last week that Obama may need Congress to raise the legal limit on borrowing, now set at $16.4 trillion, before the end of the year.
Then there’s the matter of the election itself. With control of both chambers of Congress and the White House all potentially in play Nov. 6, the voters could upend Democrats’ best-laid plans. If Republicans claim the White House and the Senate after an election waged in part over tax policy, demoralized Democrats might agree to extend all the Bush cuts without a fight.
While some Republicans are ready to man the tax barricades, among others the GOP’s anti-tax orthodoxy is starting to crack. Forty Republicans in the House and 32 in the Senate have endorsed the concept of a grand bargain to tackle the national debt, which would require Republicans to raise taxes and Democrats to accept cuts in federal health and retirement benefits. With Obama continuing to call for a grand bargain, that group is working with Democrats behind the scenes to draft a plan able to win bipartisan support.
Meanwhile, House Armed Services Committee Chairman Howard “Buck” McKeon (R-Calif.) has said he would take higher taxes over defense cuts. And during unsuccessful debt-reduction talks last year, Sen. Patrick J. Toomey (R-Pa.), one of the Senate’s most ardent conservatives, drafted a plan that would have included $300 billion in new revenue over a decade.
“I think one of the reasons that you saw Pat Toomey offer what he did is a realization that we’re going to have a $5 trillion tax increase at the end of the year,” said Sen. Bob Corker (R-Tenn.). “Hopefully, this year we’ll actually do something constructive and work out something that’s sensible over the long haul.”
Yes congress, that would be a great idea! Do something constructive and work out something that’s sensible over the long haul!! I want to keep getting those Social Security checks ... and there are plenty of Americans out there that the monthly check is the only income they have. We all worked and paid for Social Security and Medicare. It was a promise made to us, and now the promise must be kept. I don’t want Social Security to go broke just when I start to use it. Plus, it would be nice if my kids and grand-kids could have it too. That is the long haul.