Poison Pill, Veto Bait and Social Insecurity

Debra J. Saunders

12/15/2011 12:01:00 AM - Debra J. Saunders
President Barack Obama injected a poison pill into his jobs/temporary tax cut bill -- a 10-year, 5 percent surtax on people who earn more than $1 million annually that was sure to be rejected as a job killer by House Republicans. The GOP House, in turn, injected veto bait into its version of the bill -- which passed Tuesday -- most notably a sped-up decision on the Keystone XL pipeline, which the Obama administration had delayed until after the 2012 election.

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.

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.

As for Obama, he clearly is afraid to alienate enviros by approving the jobs-rich pipeline. His promised green jobs haven't materialized. On the jobs front, he doesn't have a trick up his sleeve. So he promises a tax cut today paid for by tax hikes tomorrow.

No worries. Only a few cranks will complain about the corrosive effect on public support for the Social Security system. Some will claim that they support the tax holiday -- but only for one more year.

Then it will be 2012. And it will be awfully hard to vote against a free lunch.