Don’t Extend the Payroll Tax Holiday

We the people of the United States of America, are taking a payroll tax holiday this year.

The purpose of the holiday is to put more money into the pockets of consumers. It results in an effective 2% raise in take home pay for everyone.

That translates into about $1,000 or so more for the average American worker to spend this year and goes up to a maximum of $2,136 for those making $106,800 or more a year.

Without doubt, the holiday will be extended into 2012.

Such a deal! More money in our pockets; we do our patriotic duty by spending it; it increases demand for goods and services; that demand then grows the economy and unleashes economic prosperity for all.

Why, then, is extending it a terrible idea?

What is the Payroll Tax “Holiday”, Anyway?

A detailed explanation of what the payroll tax holiday is and how it came about for 2011 is found in this article:Extend the Payroll Tax Cut Holiday… into 2012?” – azleader, Inform The Pundits, 7/1/2011

For this discussion the significant part is where your 2% raise for 2011 is coming from – Social Security!

Every dollar of that 2% raise you spend now is money taken out of your Social Security Retirement Fund for tomorrow.

As a voter, is that really what you want government to do for you?

Social Security is in Trouble

You will hear over and over again, mostly from liberal Democrats, that Social Security has $2.5 trillion in its coffers and it is solvent until 2036. Why, then, should we worry about it now?

The truth is that the cupboard is bare. There is no money in the Social Security Retirement Fund! Its already been spent.

But… but… but… government officials will insist in no uncertain terms that the $2.5 trillion is really there; it’s just been invested for your future.

Next time you hear a politician making that claim then ask these questions:

  • Why, for the first time ever, did we have to add $49 billion(less interest) to the national debt in 2010 to pay Social Security’s bills?
  • Why didn’t we just pay that $49 billion out of the Social Security Trust Fund?
  • Why, for the first time ever, has Social Security denied recipients a minimal cost of living increase – now 2 years in a row?

Unless you are exceptionally gullible, you won’t be satisfied by the answers.

More Trouble for Social Security

Social Security in 2011, because of the payroll tax holiday, has reduced revenues of 2%. Its expenditures, however, are not reduced. They continue to grow with the aging of America.

The Congressional Budget Office(CBO) calculated the estimated cost of the 2011 payroll tax holiday for last December’s big tax cut compromise. Remember that?
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” – Cost Estimate, CBO, 12/10/2011

According to the CBO, the tax cut holiday will have a direct revenue reduction of $67.2 billion to Social Security in 2011 and a total cost of $111.7 billion spread over 10 years.

Taking the optimistic view that we will only come up $49 billion short again in 2011 as predicted by the SSA WITHOUT the 2% reduction in revenues then we expect Social Security to come up $116.2 billion short this year WITH the 2% reduction.

Where is that money going to come from? The Social Security Trust Fund? Nope! It will be tacked right on to the national debt just like it was last year.

The really bad news is that the CBO estimate was based on a much rosier revenue forecast than has come to pass. A lot has happened since December. The economy has taken a nosedive when it was expected to continue to slowly improve. The reality is that we are at risk of another recession.

That means, undoubtedly, that Social Security will operate far deeper into the red this year than the CBO estimate, probably significantly more than $116.2 billion.

If the payroll tax holiday is extended into 2012 it will likely cost taxpayers at least as much as it will in 2011 and all that will be tacked onto the national debt to.


Yes, the economy is in the tank. Yes, we need to somehow stimulate demand to turn things around. Yes, putting more money into the pockets of middle income consumers through a payroll tax holiday is one way to do that.

However, what has become painfully obvious in the 1st 6 months of 2011 is that the payroll tax holiday has had zero impact on the national economy. 1st quarter 2011 GDP growth was a HORRIBLE .4% and literally all the current economic indicators are bad.

Yet government wants to decide, for you, to further risk YOUR Social Security Trust Fund that you’ve contributed to your whole life when it clearly is NOT working.

What government needs to do is stop telling us the fund is solvent when it isn’t and figure out how to make it solvent again as opposed to what it is doing… driving Social Security ever faster into insolvency!

As taxpayers we are all in favor of having more money in our pockets. But its doubtful many of us want to risk our children’s Social Security retirement for a lousy 2% today.

The federal government has already spent the entire Social Security Trust Fund. It exists only as a pile of IOU’s in a Parkersburg, West Virgina filing cabinet.

Yet the first thing you hear from all the politicians, Democrats and Republicans, is that we need to extend the payroll tax holiday through 2012 to boost the economy.

Don’t you believe it for a second.

The politicians are like child molesters offering a little girl candy from their car on a street corner. They are only offering you a treat in exchange for your vote in 2012.



Other related Social Security/payroll tax holiday articles can be found here:

Payroll Tax Cut: Victory for Obama?
-Azleader, Inform The Pundits!, 12/27/2011

Payroll Tax Cut: How Many Jobs?
-Azleader, Inform The Pundits!, 12/21/2011

2-Month Payroll Tax Cut Extension – Huh? What??
-Azleader, Inform The Pundits!, 12/19/2011

2012 Payroll Tax Cut Holiday Extension – Democrats vs. Republicans
-Azleader, Inform The Pundits!, 12/15/2011

Payroll Taxes: Good News/Bad News
-Azleader, Inform The Pundits!, 12/9/2011

Payroll Taxes… Change of Venue
-Azleader, Inform The Pundits!, 11/22/2011

The Systemic Demise of Social Security
-Azleader, Inform The Pundits!, 11/15/2011

President Obama’s Jobs Proposals
-Azleader, Inform The Pundits!, 9/1/2011

Extend the Payroll Tax Cut Holiday… into 2012?
-Azleader, Inform The Pundits!, 7/1/2011


About azleader

Learning to see life more clearly... one image at a time!

Posted on Aug 21, 2011, in 2012 Elections, Bush-era Tax Cuts, Debt, Economy, Election, Elections, GDP, Gross Domestic Product, Job Creation, Jobs, National Debt, Politics, Tax cut compromise, tax cut deal, Tax cuts for the rich. Bookmark the permalink. 6 Comments.

  1. You’ll get no argument from me, AZ. The tax holiday is a pay me now or pay me later scam. I’m planning to do a post on Social Security Tuesday or Wednesday if I don’t get side tracked by something else.

  1. Pingback: 2-Month Payroll Tax Cut Extension – Huh? What?? « Inform The Pundits!

  2. Pingback: Extend the Payroll Tax Cut Holiday… into 2012? « Inform The Pundits!

  3. Pingback: Payroll Taxes: Good News/Bad News « Inform The Pundits!

  4. Pingback: Payroll Taxes… Change of Venue « Inform The Pundits!

  5. Pingback: The Systemic Demise of Social Security « Inform The Pundits!

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