Sunday, September 11, 2011

Bleeding Social Security by Selling Jobs

by Ben Schreiner

A near constant refrain of President Obama, made both in his speech to a joint session of Congress on September 8th and since, has been that his jobs proposal (the American Jobs Act) contains “nothing controversial,” nor “nothing radical.”  In a certain respect, Mr. Obama is right; his jobs proposal is remarkably timid.  According to the most favorable estimates of the nonpartisan Economic Policy Institute, the president’s proposal would help create a grand total of 4.3 million new jobs.  But even by these rather optimistic estimates, the president’s proposal would still do little to cut into the swelling ranks of the nation’s unemployed.  Bear in mind that a staggering 14 million Americans remain unemployed, while over 10 million more are either underemployed or have simply dropped out of the labor force all together.  Aiming for a maximum creation of 4.3 million new jobs, therefore, is an astonishingly inadequate target.

Of course, all calculations on the potential job growth of the president’s proposal assume that it will pass the Congress intact.  In the current political climate, however, this is an assured impossibility.  Given this reality, one must wonder why Mr. Obama didn’t take the opportunity of addressing Congress and the American public to put forth a bold proposal for achieving full employment.  Seeing that the president’s proposal, no matter its contents, was certain to be dismembered on arrival by the obstructionist Congress, Obama could have nevertheless used an audacious proposal for putting all Americans back to work to set the parameters of the 2012 debate, while galvanizing his own disillusioned base.  This would certainly appear to be good politics. 

But alas, if Obama has proven anything in his presidency, it is that he possesses no such audacity for a progressive political transformation.  Instead, he continually resides quite comfortably among the political right on issue after issue.  This posture, evidenced in his latest jobs proposal, has left the president to stake out some rather extreme positions.  In fact, despite Mr. Obama’s insistence that the American Jobs Act is a model of political moderation, it is the most radical aspect of the administration’s proposal that faces the best chance of actually passing the Congress. 

A central tenet of the American Jobs Act, and the one garnering the most Republican interest, is a call for a further reduction—or “holiday”—in the payroll tax (the tax that finances the Social Security Trust Fund).  Now let’s be clear, a tax reduction is nothing inherently radical, but the weakening of Social Security most certainly is.  That is, of course, if it is still deemed radical to govern against the will of the majority in our proposed democratic system.  But if we accept this seemingly na├»ve premise, as we ought to, the likely passage of a further payroll tax reduction becomes quite radical indeed.

Currently, the employee payroll tax resides at a rate of 4.2-percent, after having been reduced from 6.2-percent in the tax deal struck by the lame duck Congress in late 2010.  President Obama’s latest proposal is for yet a further reduction in the employee payroll tax to a rate of 3.1-percent.  (The president, it should be noted, has also proposed a significant cut to the employer payroll tax as well.)  Another way of understanding this proposal, then, is that the president suggests a raid of the Social Security Trust Fund so the average American family can save an extra $1,500 in taxes next year.  This is without doubt a significant sum, but with the average American still heavily indebted, any tax break is unlikely to go towards appreciably stimulating sagging demand.  Instead, Americans are likely to put any added tax savings toward paying off current debts.  In this case, an added payroll tax reduction will see funds siphoned out of the Social Security Trust Fund, funneled through the indebted working class, and ultimately onto the nation’s financial institutions and financial class.  It will be yet another public subsidization of the financial sector. 

The administration, though, as we might expect, claims that a payroll tax reduction will in no way harm the Social Security Trust Fund.  The temporary reduction in revenue, they tell, will be made-up through the same funding scheme agreed upon in the 2010 tax deal: that is, additional funds will be collected from the general revenue stream (i.e., all governmental funds collected for unspecified programs or purposes) to supplement the payroll tax shortfall.  But there are substantial problems with this claim. 

First, by tying a greater portion of Social Security’s funding to general revenue, the program will become ever more coupled to the debt/deficit hysteria.  For those seeking to protect Social Security, this can only spell trouble.  After all, the tired claim made by all those bent on dismantling Social Security is that the system is “going broke.”  Although this is hardly the case (the Fund currently has $2.6 trillion in assets and is projected to remain solvent until the year 2036), actually attacking Social Security’s revenue stream will lend the claims of impending insolvency greater credence.  Legislators can continue to crow that Social Security is running out of money, while they actively work to starve the program.  And as Social Security funding becomes more reliant on general revenue and, linking it to the debt/deficit, the prospects of fundamental Social Security “reform” (read: substantial cuts) move further up the austerity focused Congressional agenda.     

Second, the notion that the proposed payroll tax reduction is a mere “holiday,” implies that the rate will eventually return to its original level (i.e., 6.2-percent).  This, though, is merely a ruse.  “Tax holiday” in Washington speak signifies nothing less than a permanent tax cut.  As Republicans have insisted ever since their successful 2010 tax negotiations, letting temporary tax breaks expire, or “sunset,” as originally planned amounts to a tax increase.  But this logic is by no means limited to Republicans.  As the president, echoing Republicans, argued in his speech delivered to the joint session of Congress, 
If we allow that tax cut [the 2010 payroll reduction] to expire—if we refuse to act—middle-class families will get hit with a tax increase at the worst possible time.  We can't let that happen.  I know that some of you have sworn oaths to never raise any taxes on anyone for as long as you live.  Now is not the time to carve out an exception and raise middle-class taxes [emphasis added].

With this new bipartisan consensus regarding what constitutes a tax hike firmly in place; expect any “temporary” reduction in the payroll tax to remain in place.  Expect, in other words, Social Security to be slowly bled to death. 

What, then, is perhaps most striking about this latest attack on the American social safety net is that it is the “liberal” Democrat Obama who is leading the charge—readily laying the ground for the impending “reform” of Social Security.  Only Nixon could have gone to China and, indeed, only Obama can gut Social Security.  This gutting, though, is to be sold to the public as a benign and plainly sensible means for creating jobs.  And with an entrenched unemployment rate near 9-percent for the foreseeable future, the ploy may very well succeed.  Nothing spells opportunity quite like a crisis.

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