When Obama announced his deal with the Republicans, I said that I was suspicious of his decision to reduce the payroll tax from 6.2% to 4.2% for one year. I said that this would help to actually create a crisis in the Social Security trust fund (that is currently in good shape) that those who want to loot that fund need in order to push through their plans. I am becoming more and more convinced that my cynicism was justified.
The first reason is that we have seen that no tax cut is ‘temporary’. As with the Bush ‘temporary’ tax cuts that were due to expire this year, not continuing them is now being portrayed as a tax increase. So it will be at the end of next year when the payroll tax cut expires. People who oppose the end of this cut will refer to the end as a tax increase and the Democrats will cave and continue it, and this will actually throw all the actuarial calculations out of whack, just as the looters want.
Secondly, the idea that the payroll tax cut will spur consumption (that will in turn act as source of economic stimulus) does not hold up. The small rise in the take home pay (less that $100 per month for a median household income of $50,000) is unlikely to cause people to rush out and buy stuff. If a one-year stimulus plan were the goal, it would have been better to keep the tax level unchanged and send that same family a single check for $1,000, which has a greater chance of being spent. This is the same kind of gimmicky tax rebate stunt that George W. Bush pulled, but it causes less damage than a ‘temporary’ payroll tax cut that will become permanent. (Note that I personally think that a consumption-based economy is insane but for the purpose of argument I am staying within that framework.)
I have a very bad feeling about this. It reinforces my belief that when it comes to adopting policies that harm the poor and middle class, the Democrats are the party of choice for the oligarchs because they know that party supporters will not revolt against their own leadership. They used Bill Clinton to cut welfare benefits to the poor and they are using Obama to attack Social Security. Their plan seems to be working.