True or false: Barack Obama wants to raise taxes and Republicans in Congress want to cut them. The surprising answer is, False. Although it can usually be said that the president never met a tax hike or spending increase he didn’t like, such is not the case right now.
One does not have to be a fan of Obama or his motives to recognize a good deal for the American people and applaud him for proposing it. It seems that the president wants to extend the payroll-tax cut that is set to expire at the end of this year.
It hasn’t even been a year since Republicans fought for, and obtained, an extension of the Bush tax cuts for two years. Yet now they are opposing the proposed extension of the payroll-tax cut that was part of the deal to extend the Bush tax cuts.
There are two types of payroll taxes: Social Security taxes and Medicare taxes.
Social Security taxes were instituted in 1937 as part of Franklin Roosevelt’s New Deal. The original rate was 2 percent. Then, as now, half the tax is paid by the employer and half the tax is paid by the employee. By 1960, the rate had tripled. Since 1990, it has been 12.4 percent. Social Security taxes were originally levied only on the first $3,000 of yearly income. That threshold is now up to $106,800. That means that the maximum amount one could conceivably pay in Social Security taxes for one year is $6,621.60, with one’s employer paying the same amount.
Payroll-tax deductions for Medicare were instituted in 1966. The original rate was .7 percent, again, divided between employer and employee. Since 1986, the rate has been 2.9 percent. After 1993, the taxable threshold was eliminated. Thus, unlike Social Security taxes, Medicare taxes are levied on every dollar of earnings.
The Bush tax-cut extension that was enacted last year included a reduction in the employee’s share of Social Security tax rate from 6.2 percent to 4.2 percent. The employer’s share remains the same. A cut in the Medicare tax rate was not included.
A reduction in the Social Security tax rate greatly benefits those who need it most — the poor and middle class. But unlike a refundable tax credit, the extra 2 percent of their income that Americans are now allowed to keep in their pocket and out of the hands of the government is not a subsidy or income transfer payment — it is their money.
In one of his recent weekend radio addresses, Obama proposed extending the temporary payroll-tax cut: “There are things we can do right now that will mean more customers for businesses and more jobs across the country. We can cut payroll taxes again, so families have an extra $1,000 to spend.”
Yet Republicans in Congress generally oppose extending the cut in Social Security taxes.
A spokesman for House Majority Leader Eric Cantor (R-Va.) said that “all tax relief is not created equal.” He maintains that Cantor believes “there are better ways to grow the economy and create jobs than temporary payroll-tax relief.” House budget guru Paul Ryan (R-Wisc.) termed the tax-cut extension “sugar-high economics.” The office of the chairman of the House Ways and Means Committee (the committee that writes the tax laws), David Camp (R-Mich.), who is also a member of the new congressional “supercommittee,” issued a statement saying that tax reductions, “no matter how well-intended,” will increase the deficit.
Over in the Senate, Lamar Alexander (R-Tenn.) objected as well: “We don’t need short-term gestures. We need long-term fundamental changes in our tax structure and our regulatory structure that people who create jobs can rely on.”
Republican presidential candidate Michele Bachmann (R-Minn.) also opposes extending the temporary payroll-tax cut. Candidate Mitt Romney said that he “would prefer to see the payroll-tax cut on the employer side.”
Why do Republicans want to raise taxes?
Can it be that their reputation as tax cutters is not so deserved? The only Republican in Congress that I am aware of who has called for the complete elimination of the income tax and not replacing it with anything is Ron Paul. And the same goes for the Republican presidential candidates. After all, it was under Republican idol Ronald Reagan that Social Security tax rates increased from 10.16 to 12.12 percent and Medicare tax rates increased from 2.1 to 2.9 percent.
For Republicans to claim that the payroll tax cut extension should be rejected because it is shortsighted or will increase the deficit is ludicrous, considering that only last year they fought for an equally shortsighted and deficit-increasing measure — the extension of the Bush tax cuts.
But letting the Social Security tax-rate cut expire is not the only way that Republicans are willing to effectively raise taxes. Out of one side of their mouths they are saying that they will not vote to raise taxes, but out of the other side they are talking about closing tax loopholes, ending tax shelters, and reforming tax deductions and credits. Those measures raise taxes as surely as a rate increase, but they allow the Republicans to pose as being for tax and budget cuts.
Regardless of the president’s ulterior motives, his other horrible policies, his plans to increase income taxes on the “rich,” his nanny-state philosophy of government, his poor understanding of economics, and his belief in the redistribution of wealth, a cut in the rate of any tax — payroll, income, sales, excise, property, or otherwise — is always a good thing for liberty and limited government. It may be a bad thing for government revenue, but why should a fiscally conservative, limited-government, budget-cutting Republican have a problem with that?