Wednesday, December 28, 2011

The Payroll Tax Cut

‘Hip Hip Hooray! The Senate graced us with a tax cut!!’ Or did they?

Congress voted last week in favor of extending, by two months, a payroll tax cut allowing the citizens to retain an extra 2% of their pay checks. “A tax cut is a tax cut, right,” ask the citizens looking for reassurance. Not exactly. These payroll taxes are earmarked specifically to fund, or ill-fund, Social Security. The end result is a deepening of an already vacuous funding hole.

Social Security already lacks the money needed to pay current benefits. This rerouting of 2% back to the tax payer simply means that the Government will shortly be asking for the money back to repay Social Security for the additional short changing this will cause. “We’re gonna have to raise taxes because we just don’t have enough money to pay Social Security,” we’ll be told by the Federal Government with a vacant look on their collective faces. To put it in terms as seen by this Klem, ‘Don’t tell me that you’re buying me a milk shake only to ask later for the funds to be returned in full plus interest.’

If you want to stimulate the economy beyond the purchase of Christmas presents, which this essentially accomplishes, make it a tax cut that will actually stimulate. This stimulating effect may be achieved by implementing a tax cut that households and businesses can make intermediate and long term decisions on (tax cuts on income or capital gains are two examples). Allow people to make spending decisions going forward into the future. Businesses must be able to plan on tax cuts for them to have a positive effect. So let them make plans to retain a larger percentage of their gross sales to reinvest back into the business in the form of buying equipment, constructing new buildings, and hiring new employees.

A two month 2% tax cut allows individuals to buy Christmas presents for the family. Don’t get me wrong, I’m a huge fan of both presents and family. But I’m not in favor of a tax cut that will later obligate me to pay for the presents of someone else’s family. That’s what’s happening here. Those 46% of Americans who pay no Federal income taxes [46% figure was obtained from] are probably fully in favor of this bonus because they’ll have no obligation to pitch back in to fill the Social Security funding hole. Me? I’m feeling gypped.