A Pyrrhic victory for Democrats

Democrats think that they won a big political victory by extending the Social Security withholding rate cut (4.2% instead of the standard 6.2%) for another 60 days.  Apparently losing the extra $40 per paycheck that workers have been taking home would have been devastating, if all the sob stories solicited by the White House are to be believed.

Funny how times change, isn’t it?  American families just can’t live without that extra $80 a month ($960 a year) that Barack Obama has put in their pockets, but in 2008, when President Bush gave families a $600 per worker/$1200 per family tax rebate to help keep consumer spending going, Michelle Obama poo-pooed it as insignificant – “What can you do with that? Not to be ungrateful or anything. But maybe it pays down a bill, but it doesn’t pay down every bill every month.  And it may even feel good that first month when you get that check. And then you go out and you buy a pair of earrings.”

Yet the payroll tax rate holiday extension has created two interesting problems for Democrats.  First, when the 60 day extension period is up, they can’t reasonably argue for anything other than a permanent reduction of the Social Security withholding rate to 4.2%.  After all, they now have documented evidence that children will either starve or be irreparably harmed by the sudden loss of pizza nights and satellite TV if the withholding rate is increased.

Second, and most importantly, the funding mechanism required to “pay” for this rate cut — transferring money from the Treasury’s general fund — pretty much undermines the ongoing fiction that Social Security is a “pay-as-you-go” system that is funded entirely by worker contributions and the mythical Social Security “trust fund.”   Combine this with President Obama’s previous statements that he couldn’t guarantee Social Security payments without a debt ceiling increase, and you have a clear illustration that Social Security, for all intents and purposes, is broke, and is already dependent on a government credit line (i. e. debt)  in order to meet its obligations.

I can’t think of a better reason, or a better time, to start talking about Social Security reform.  A smart Republican candidate would start doing it sooner than later.


(Update – thanks to commenters, I corrected my numbers to reflect $40 per paycheck, instead of $40 per month.  And the Bush rebate was $600 per worker, or $1200 per family for married filing jointly, as long as wages did not exceed $75,000 per worker or $150,000 per jointly-filing family.  We should also remember that Obama’s Making Work Pay plan initially caused a lot of confusion on tax returns, and caused many taxpayers to actually owe the IRS money.)


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