A Stitch in Haste

Regardless of which Democrat is elected in November, one of the first policy showdowns in 2009 will likely be calls to eliminate the wage cap on Social Security taxes ("scrap the cap").

Obama has been making more noise on the subject than Clinton:

Obama believes that the first place to look for ways to strengthen Social Security is the payroll tax system. Currently, the Social Security payroll tax applies to only the first [$102,000] a worker makes. Obama supports increasing the maximum amount of earnings covered by Social Security[.]

Back-pedaling (back-pandering?), Obama revised his calls for scrap-the-cap to instead endorse the so-called "donut hole" plan (originally crafted, incidentally, by a Republican).

An opponent of Obama's call for higher payroll taxes explains:

Currently, all wages below about $100,000 are subject to a 12.4% Social Security payroll tax. But all wages above that amount are not subject to the tax. Mr. Obama wants to eliminate the cap, but, in a concession to taxpayers, exempt wages between $100,000 and $200,000.

There's just one problem with the notion that scrap-the-cap is "a little bit more" — it's a willful lie. Scrap-the-cap would be the largest tax hike in American history. The donut hole, meanwhile, would not only not be much better, but would also have no underlying logical basis other than to pander to the middle class (shouldn't a progressive liberal concerned about the working poor be advocating a hole (i.e., an exemption) for the first $100,000 in wages rather than the second?).

In any case:

The top marginal federal tax rates would effectively increase to 50.3% from 37.9%, equivalent to repealing the Bush income tax cuts almost three times over.

This, according to Obama, is no big deal:

"Once people are making over $200,000 to $250,000," Mr. Obama says, "they can afford to pay a little more in payroll tax."

Seizing an additional one-eighth of every dollar you earn is "a little more"? I guess that, when it comes to lying, "Yes we can."

A few more hasty stitches in review:

--The wage cap increases every year anyway. When's the last time you heard a liberal acknowledge that pesky fact?

--When people pay more in Social Security taxes, then earn more in benefits.* If the idea is to "ask"** those earning above the (ever-increasing) wage cap to pay more FICA tax, does that mean with or without the added benefits that currently accrue to those taxes? If the former, then the funding problem isn't helped that much — it simply becomes a "tax more, pay more" system that still faces long-term crisis. If the latter, then that's an even bigger "little more" — bigger than Obama, qua moral defective, is willing to declare openly — his speeches and website are silent on the matter.

--The original purpose of Social Security was to mandate modest but compulsory old-age insurance. Its original New Deal proponents were adamant that it be formulated in such a way that people would not consider it "the dole." FICA — deceptively labeled a "contribution" — was not designed to be "just another tax to raise." But once you've purchased that old-age insurance (i.e., by paying a lifetime of capped Social Security "contributions"), then what is the basis for the government compelling you to purchase even more (i.e., by removing the cap)? Of course, there is no basis. The only logic in scrap-the-cap/donut-hole is to abandon forevermore the notion of Social Security as "old-age insurance" and replace it with a brazen redistributionist welfare scheme. Again, think Obama will acknowledge that openly?

More thoughts from Cato@Liberty, Cato Daily Commentary.

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Unrelated, but from the same op-ed:

Many high-earning individuals evade the Medicare payroll tax by setting up "S Corporations," paying themselves in untaxed dividends rather than taxable wages. John Edwards avoided $590,000 in Medicare taxes this way in the 1990s.

I take it back: There are indeed "Two Americas" — the one consisting of disgraceful hypocrites like John Edwards, and the one with honest people.

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*But only at a redistributionist rate: A worker who pays twice as much FICA tax over her working career as her coworker earns far less than twice as much in benefits. This is why those who insist that the wage cap makes Social Security "regressive" are mistaken at best and liars at worst: the program as a whole is an extremely progressive income redistribution scheme.

**What an insolent lie that is — that people are "asked" to pay taxes. What happens when you say "No thanks..."?

The first "stimulus package" (remember, you can't call it a tax rebate, since non-taxpayers are receiving it too) hasn't even commenced yet -- and Barack Obama is already calling for a second one?

To fix the economy, Obama proposed relief for homeowners and an additional $30 billion stimulus package to address the nation's economic woes. "If we can extend a hand to banks on Wall Street, we can extend a hand to Americans who are struggling," he said.

Of course, most of those "Americans who are struggling" are doing so, from a budgetary perspective, not because of oppressive federal income taxes -- that's reserved for the non-strugglers -- but by obscene FICA taxes that seize one-eighth of blue-collar workers' paychecks. Somehow I expect no "extended hands" from a (no-gridlock) Obama Administration on that front.

As I blogged previously: The cure for Republican fiscal recklessness from 2001 through 2006 will not be Democratic fiscal recklessness from 2009 through 2012.

More:

As I said at NASDAQ last September: the core of our economic success is the fundamental truth that each American does better when all Americans do better; that the well being of American business, its capital markets, and the American people are aligned.

Somebody please tell that to Big Labor (or, for that matter, John Edwards or Paul Krugman).