Thursday, December 22, 2011

Getting the Facts Straight: Payroll Tax Edition — The Monkey Cage

Nolan McCarty, Princeton political scientist, explains how the Republicans and the Democrats get it wrong about consequence of cutting the Social Security payroll tax. The Republicans lie - claiming the cuts endanger seniors' benefits. (he explains).  But the Dems just say the shortfall will be made up from "general revenues".  They miss the opportunity to explain how the Social Security system actually works.  It is not a pension you fund with your taxes.  Social Security is an inter-generational transfer tax (we are paying our parents benefits with our current taxes).
A candid explanation is 1) the cuts get "paid for" by the government borrowing the money to pay the Social Security trust fund. 2) the surplus built up during the baby-boomer's working years will run out in/about 2025 when the pyramid turns upside down.
This is because Social Security payroll taxes are and have been too low. Payroll income above $110,000 is not taxed for social security purposes. That mistake was made 20 years ago and Republicans - who are hostile to the very idea of Social Security - have refused to allow the "cap" to rise for the past 22 years (read my lips, the Grover Norquist pledge, etc.) And of course Democrats intimidated by the popular appeal of lower taxes have been complicit in this.
'via Blog this'

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