Washington has been on a high-sugar policy bender. Last December, Democrats had wanted to extend the Bush tax cuts only for those earning less than $250,000 -- at a 10-year cost of $3 trillion. The GOP wanted to extend the cuts for all earners -- which would bump up the deficit by another $700 billion -- lest a tax increase sabotage a recovery.<p>The Dems gave in, but to seal the deal, they won a one-year "holiday" in Social Security taxes that decreased workers' payroll taxes from 6.2 percent to 4.1 percent.
This year, Obama is doubling down. Even though Social Security is spending more than it takes in, the president wanted to shave workers' Social Security taxes to 3.1 percent of their salaries for 2012. That would have been $3,200 for workers earning $106,800. Obama even borrowed the GOP's old talking point in arguing that ending the tax holiday would mean that "middle-class families will get hit with a tax increase at the worst possible time."
To their modest credit, House Republicans extended the Social Security tax cut without expanding it. In the long run, this tax holiday is bad policy.
It severs the bond between what workers pay into Social Security and what they take out. As Charles Blahous, a Republican Obama-appointed trustee of Social Security and Medicare told National Public Radio, "this could be the beginning of the end of the idea that this is an earned benefit" -- the notion that Washington should not cut benefits because recipients paid for what they get.
Though many Republicans opposed the tax holiday, only 14 voted against the House bill. Rep. Jeff Flake, R-Ariz., was one of them. "Simply put," Flake explained, "we can't keep passing one-year extensions and promising to pay for them over 10 years." There's no way to compel future Congresses to comply. And: "If we don't have the courage to reform entitlement programs, we shouldn't be siphoning off their dedicated revenue."
Even the Democratic Senate has been lukewarm on Obama's millionaire squeeze. Already, the Senate has twice rejected legislation with lesser surtaxes.