Written by Stephen Wilson   

With every other proposal of his September jobs appeal to Congress thwarted, the President has at least managed to twist Republicans into the unheard of position of refusing a tax cut.

Obama wants a continuance in 2012 of 2011's trimming of the payroll tax, (i.e., Social Security). In 2011, the tax was 4.2% rather than its customary 6.2%. For 2012, a further lowering to 3.1% is the proposal. Earlier, the employer side was to be cut to 3.1% as well, but that's been dropped in the latest drafting of the bill.

We have a heretical idea, but we'll get to that later.

The prediction is that some degree of tax reduction will pass. Otherwise, we will hear Democrats tell us from now to the election that Republicans allowed taxes to rise for the 99% while the Republicans in the debt ceiling fracas and Supercommittee deadlock refused to consider a tax increase of a like percentage for the wealthy.

The intent of the cuts is that the extra money the government leaves in our pockets will increase spending to boost the economy and create jobs. For the taxpayer, it's not small change: an extra $1,500 for a family earning $50,000, for example, and the same for the business employing them, which, aggregated across all workers in a company, could be enough to pay for new jobs.

But politics come before people in today's America. This is an Obama initiative that would accrue to his credit, so Republicans had to come up with some rationale for uncharacteristically objecting to a tax cut. Republican House Leader Eric Cantor led off months ago in a Wall Street Journal op-ed, declaring that temporary tax cuts don't create jobs; that this two-year payroll tax reduction didn't meet his test that cuts be “broad-based, immediate and permanent” for them to be job creators.

Thus, the reversal of roles: Those same Republicans, who at the end of last year insisted on retention of the steep Bush tax cuts for two years, now say a two-year tax cut is unproductive. Those same Democrats who tried to force revenue increases as part of the debt ceiling pact and Supercommittee negotiations are now arguing for a revenue reduction.

The payroll tax is our most regressive tax by far. A higher percentage of one’s annual income is paid by lower income workers than by those making higher incomes. That is because it is levied against every dollar earned by the average worker, but is no longer subtracted once anyone’s income passes $106,800 during a calendar year, no matter how large that income becomes. The more money one makes, the less the tax as a percentage of income, until it ultimately shrinks to infinitesimal. At the extremes, those investment bankers and corporate CEOs who are paid, say, $10,000,000 in a year are done paying their Social Security tax on January 4th, after just three days on the job, whereas the average working stiff pays it all year long. And those who make their money from investments rather than a paycheck pay nothing at all.
TURNING THE TABLES

Republicans have an added concern. They are worried about 2037. That's the year the Social Security trust fund is expected to begin coming up short of its ability to pay seniors full rate. If the tax is trimmed to alleviate today's problems, the fund could be in trouble as soon as 2036.

So to put that worry to rest and keep Social Security money coming in, how about this idea? OK, it's whimsical, but ethically satisfying. For all these years, ever since Social Security began, those who made more than the cutoff — this year’s $106,800 — have had a free ride on that extra income. During these difficult times when the payroll tax is so burdensome for the average citizen, why not turn the tables. Charge no payroll tax at all until the $106,800 is reached; then charge the 6.2% only on all income that exceeds that threshold. Employee and employer alike. (Who knows, that might even cause big corporations to reconsider lavish management paychecks.)

It’s a perfectly fair idea that does something to redress the inequities that have favored higher income people for so long. Of course, it will go nowhere in Congress. But their protests and its defeat would demonstrate how Congress “coddles” those who make the most money, to use Warren Buffett’s word, and we would get to watch the comedy of whatever contorted logic they come up with to justify their opposition.

from LetsFixThisCountry.org