The Fiscal Cliff Deal, which recently passed Congress and has been widely criticized by conservatives, had one plus: It did not extend the irresponsible payroll tax holiday, which added to the national debt and endangered the future of Social Security.
Last week's issue of the newsletter What’s Happening with Conservatives and the Tea Party reported:
Republicans completely surrendered on everything in the Fiscal Cliff Deal, resulting in "a complete rout by the Democrats," according to columnist and commentator Charles Krauthammer and other conservatives.
Krauthammer also said the Cliff Deal "neutered" House Republicans.
The bill that passed "postpones" for two months the automatic cuts in spending that were supposed to occur as directed by the Budget Control Act, which passed in August 2011, as part of the last increase in the debt limit. This law provided that, if the Super Committee failed to come up with cuts in federal spending, then automatic cuts (sequestration) would occur on January 2, 2013 and continue each fiscal year through 2021.
Most conservatives were livid that the scheduled cuts in spending did not happen and believe they will likely be "deferred" again into the future or, at best, scaled way back.
But Congress appears to have allowed the temporary reduction in employees' Social Security payroll tax from 6.2% to 4.2% to expire. (The employers' portion of the payroll tax was never reduced.)
This reduction in the payroll tax was pushed by the Obama Administration during the lame duck session of 2010 for Fiscal Year (FY) 2011. After a struggle between the House and Senate over the details, it was eventually extended again for FY 2012.
CNN explained, "The tax cut costs roughly $120 Billion a year, but rather than let Social Security funding suffer, the Treasury Department has made the program whole with money from general funds. Translation: It's adding to the country's deficit."
A previous issue of this newsletter reported that presidential candidates Rick Santorum, Rick Perry, and Michele Bachmann (pictured) opposed this scheme (but Mitt Romney, Newt Gingrich, and Ron Paul supported it).
Congresswoman Bachmann said:
"I opposed it when it was first proposed, because I knew that it would blow a hole of $111 billion in the Social Security Trust Fund. This is Barack Obama's idea. He said that we would create millions of jobs if we lower the payroll tax.
"That's not true. It didn't happen. And his administration admits it didn't work. So why would you continue a policy that doesn't work?"
The newsletter also quoted several other Social Security experts and conservative leaders:
Charles Blahous, former Executive Director of President Bush's Commission to Strengthen Social Security and now one of the two public trustees of the Social Security system, wrote that continuing the payroll tax cut "could eventually end Social Security as we know it."
He explained, "It's really basically a conversion of the system from payroll-tax financing to partial income-tax financing. Down the line, you probably have a greater risk of benefit cuts because of the fact that benefits have less protection when they are subsidized by the general fund."
Alan Reynolds, a senior fellow at the Cato Institute, refuted the Obama claim that the reduction in the payroll tax helps the middle class:
"Borrowing from Peter to lend Paul a temporary tax cut doesn't put more money in people's pockets. It puts more IOUs in their pockets. That is, it puts Paul even deeper in debt to Peter, and therefore obligated to pay more taxes in the future to repay that loan with interest. The best way to pay for another temporary cut in the payroll tax is to not pass it."
Ted Abram, a member of the board of directors of FreedomWorks Foundation, explained, "Temporary tax gimmicks damage America. The payroll tax-cut was pure fraud on the American voter and retards economic growth. In truth, the payroll debate was a political contest to buy votes. A game played by the President, Congress, Republicans, and Democrats."
That same newsletter remarked, "For the damage the payroll tax reduction does to Social Security and the national debt, all that it accomplishes is to provide the average worker about $20 a week. This might stimulate the pizza industry, but that's it. Has anyone checked to see if Domino's has hired more delivery drivers in the last year?"
After two years and close to a quarter of a Trillion dollars added to the national debt, no one in either party wanted to continue this disastrous policy.
The Cliff Deal is troubling for what it did and failed to do. But we can be thankful it did not extend the temporary reduction in the payroll tax.
The previous issue of What's Happening with Seniors Benefits: Liberals Oppose Increasing Medicare Eligibility Age
The previous issue What's Happening with Conservatives and the Tea Party: Republicans Completely Surrendered in the Cliff Deal
Previous issues of both newsletters.
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