Payroll Tax Cut Comes Down to Philosophy

The latest battle in Congress is over the payroll tax cuts which are about to expire at the end of 2011.  The payroll tax cuts are really a reduction in social security deductions from our paychecks (6.2% to 4.2%) and according to the NPR segment that amounts to about $1,000 extra net income for the average working American.  The Democrats’ plan is to offset the reduction in tax revenue from these tax cuts by adding a 1.9% tax on those making over $1 million and they spread this out over ten years.   In this post I will argue against the Democrat’s proposal and point out that this battle gets to the heart of philosophical differences between Liberals and Conservatives.

Math Check

Let’s first make sure the Democrat’s Math adds up.  $1,000 average savings would be seen by roughly 160 million workers so that equals a net tax revenue reduction of $160 billion in the Federal budget.  From the IRS 2009 tax data, the total taxable revenue of those making over $1 million dollars is $726.1 billion and those individuals comprise the top 10% of income earners in the US.  Taking 1.9% of that total income and multiplying by 10 gives a total tax revenue increase of $138.0 billion which is not equal to $160 billion but it is in the ball park so I agree with the Liberal Math here (which is rare) – The increase in taxes on the wealthy will, on paper, offset the tax revenue reductions from the payroll tax cut.

Income Redistribution

My main problem with this proposal is with its philosophy.  The Liberal mindset sees a need to reduce taxes on one segment of the population but instead of correcting our spending problem they choose to take money from another segment of the population.  This is income redistribution in its simplest form and there is no way you can argue against that point.  

Income redistribution is nothing new to Liberals and I’ve already shown that 90% of all current tax revenues go to pay social programs that are mainly comprised of beneficiaries who don’t pay any taxes.  Right now we have a serious dichotomy in America where 53% of the people pay taxes and the other 47% get that money in various ways (Social Security, Welfare, Medicare, Medicaid and Unemployment Insurance).  This is no way to run a country and you’d think we’d want to reverse this trend but the Democrats want to double down on it.

Full Disclosure – I am not in the category of those making over $1 million so I would be receiving this proposed benefit but I don’t want to receive money that is taken from another segment of the population by simply raising their taxes.  I’d rather take their money when they pay for a good or service that I offer which is the way we used to do things in America.  The Liberal method of income redistribution goes against the fundamental principle of the American Dream where all its citizens strive to enter that top income tax bracket.  Where is the incentive to get there when our Government demonstrates that you will be punished upon arrival?

 We Have a Spending Problem

I find it interesting that the Democrats snapped to increasing tax revenue and never entertained spending cuts.    In 2011 we have a budget deficit of $1.3 trillion and we can’t find $160 billion to cut for the offset of the payroll tax cuts?  Our total outlays in 2011 is over $3.6 trillion so $160 billion is only 4.4% of those outlays and anyone in business could easily cut that amount from their budgets when push comes to shove.  I have yet to hear any Democrat get in front of a microphone and give the results of an in-depth study they have done to investigate areas of the current budget that could be eliminated.   

Don’t tell me we need to raise taxes until you’ve shown me that the Federal government is operating at an optimum level and there is no more money we can cut from the Government without sacrificing its ability to carry out its duties as outlined in the Constitution.

It’s a Zero Sum Game

Giving more money to one segment of the population by taking it away from another doesn’t sound like it will stimulate the economy.  The people who make more than $1 million still like to use that money to buy things but under the Democrat’s plan they will have less money to spend and some who own business will have less to pay their employees, purchase equipment and pay for services that help support their businesses.  This money flowing to the bottom 90% is not materializing out of thin air and it is coming from other consumers (in the top 10%) who now won’t have that money to spend or invest. 

The Heart of the Problem

This battle over the payroll tax cut gets to the core of the differences between Liberals and Conservatives.  Liberals are married to the idea that government spending is the way to stimulate and regulate the economy and they are convinced that this is their only tool.  They have a hammer and every problem they see looks like a nail. 

Conservatives recognize that the macro economy is too complex to be solved by a group of bureaucrats and instead would prefer to rely on the infinite tools that the Free Market provides to solve our economic woes.

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1 Response to Payroll Tax Cut Comes Down to Philosophy

  1. Pingback: Political Disconnect and the Dunning-Kruger Effect | cosmoscon

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