Payroll Taxes: Good News/Bad News

Good Debt Down $55 Billion... Bad Debt Up $124 Billion (Source: U.S. Treasury Department)

While debating extending the payroll tax holiday into 2012 its critical we discuss our looming national debt at the same time. They are intimately intertwined.

Caused by payroll taxes, there is a “good news/bad news” twist to the national debt story that is painfully obvious as we cross the infamous $15 trillion dollar barrier.

The consequences of this new twist will be profoundly felt in the United States for decades to come.

The Good News

Lets start with the good news first…

On November 14th the national debt (ND) stood at $14.978 trillion dollars. By November 30th it had shot UP $132 billion to $15.110 trillion. (That, btw, isn’t the good news ;))

However, since November 30th the national debt has dropped back DOWN $64 billion, for an overall growth of only $68 billion in 23 days.

I say ONLY $68 billion because that is an overall ND growth rate of just $2.9 billion/day.

$2.9 billion/day sounds like a lot, and it is, but it is way below the average daily growth rate of the national debt since President Obama took office… which is $4.2 billion/day.

Things are kinda looking better, right? Looks like we are starting to get debt under control, just like the President promised.

That is the good news.

The Bad News

Now for the bad news…

Over that same 23 day period the “Debt Held by the Public” part of the national debt rose $124 billion.

I call “Debt Held by the Publicbad debt because it is money owed to outside creditors. It counts against our national credit rating.

The other part of the national debt, “Intragovernmental Holdings”, is good debt because that is just money the government owes to itself. That doesn’t count against the national credit rating.

At $124 billion, bad debt (“Debt Held buy the Public”) grew at an alarming pace of $5.4 billion/day. That is over $1.2 billion/day HIGHER than Obama’s average! That is not a good thing. In fact, its bad.

So, in the last 23 days the amount of good debt dropped $55 billion at the same time as bad debt grew by $124 billion.

That is a dramatic shift in national debt growth from good debt to bad debt.

All of our debt growth over the last 23 days was bad debt… and a lot of it.

It never used to be that way, but its become the national trend.

That is the bad news.

What does all this have to do with extending the payroll tax holiday?

Plenty! Payroll taxes are the reason behind the dramatic shift in debt growth from good debt to bad debt!

Back in the good old days we took in more in Social Security payroll tax revenues than we spent.

So, we borrowed those excess revenues and spent them in order to keep federal deficits lower. That borrowing all got added into good debt… not really such a bad thing.

We’ve been living off the fat of those excess revenues for decades.

Those days are over!

What happened?

Social Security benefits have been expanded over the years.; life expectancy has increased; baby boomers are finally arriving at retirement age; there are fewer workers contributing; and the economy is in the tank.

In short, everything wrong with Social Security fiscal policy that politicians pledged to fix, but didn’t, have finally come to fruition.

All those things slowly ate away at the yearly payroll tax surpluses that the federal government has become addicted to spending.

CBO 75-year Social Security Revenue Projection

It wasn’t supposed to happen until 2016, but Social Security stopped running a surplus in 2010.

The CBO says that under current conditions Social Security won’t run another surplus for at least the next 75 years.

There are no more surpluses. Now there are only deficits.

The $2.6 trillion Social Security trust fund that politicians like to claim will keep Social Security solvent until 2036 is actually stored as good debt within the national debt.

As Social Security cashes out its $2.6 trillion to pay growing expenses, all that good debt will simply be transferred over into bad debt. That, of course, speeds up the growth of bad debt. That is a bad thing.

The two payroll tax cuts since President Obama took office have further accelerated that process.

But isn’t the 2012 payroll tax holiday gonna be paid for?

Yes and no.

Its still being hotly debated, but for ease of discussion lets assume the Democratic plan to raise taxes on the rich is adopted and the final tax cut is $200 billion.

Here is how it will work…
To pay for a $200 billion payroll tax cut in 2012, taxes will be raised just enough to pay it off over 10 years. Tax revenues will increase $20 billion a year for the next 10 years to pay off the “holiday”.

That is how Congress and Presidents play their fiscal games.

According to the Democrat’s most recent proposal before Congress, the first tax increase doesn’t take effect until 2013… AFTER the 2012 general elections. Huh, imagine that. Isn’t that special?

Therefore, every penny in lost payroll tax revenue in 2012, all $200 billion of it, will be paid for by borrowing into bad debt next year.

Yes, the payroll tax holiday will eventually be paid for by a permanent tax hike. No, it won’t be paid off for 10 long years.

Conclusions

The U.S. Treasury Department calls it “Debt Held by the Public”; I call it “bad debt”; but economists have another term for it… they call it “sovereign debt“.

Yup, that is the same “sovereign debt” thingy we hear bandied about in the news. Sovereign debt is the cause of the European debt crisis that has spooked world stock markets and threatens global recession.

It was years in the making but sovereign debt growth here in the United States has greatly sped up, now that Social Security runs deficits instead of surpluses.

It sticks out like a sore thumb when a $68 billion overall increase in the national debt comes along with a $124 billion increase in sovereign debt at the same time in just 23 days.

Sovereign debt growth is literally this nation’s fastest growing fiscal concern.

Sovereign debt can kill job creation, destroy economies and topple governments… just like it is doing right now in Europe.

What was once a cash cow has evolved into a sovereign debt millstone for the United States.

Yet what do we do about it?… make the problem WORSE!

Politicians just go on about business as usual playing election year politics with payroll taxes and hastening our fall ever deeper into the sovereign debt trap.

That is why extending the payroll tax holiday into 2012 and the national debt should be discussed together. They are intimately intertwined.

But they won’t be!

Keep that clearly in mind when marking your ballots in 2012.

—————————————————————————————————————————————————————

Addendum:

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… 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

Don’t Extend the Payroll Tax Holiday
-Azleader, Inform The Pundits!, 8/21/2011

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

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About azleader

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

Posted on Dec 9, 2011, in 2012 Elections, Debt, Economy, Election, Europe, National Debt, news, Payroll tax, Politics, Social Security. Bookmark the permalink. 7 Comments.

  1. Very informative. I’ve heard a lot of talk about payroll taxes lately but, other than the basics of them, didn’t know much about what the whole conflict was over. What an insane tax system.

  2. You are 100% on the mark about the tax system being insane.

    We are in desperate need of a tax overhaul. There are to many loopholes for the rich and for corporations and for tax incentives for bad ideas.

    That is why a more simplified system such as a flat tax or a fair tax should be considered… , as Obama’s Bowles-Simpson Commission suggested.

  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… Change of Venue « Inform The Pundits!

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

  5. Pingback: Don’t Extend the Payroll Tax Holiday « Inform The Pundits!

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