The Conservative Argument AGAINST Barack Obama’s Social Security Payroll Tax Holiday

This one piece of the compromise plan also explains why growth after next year is likely to be weaker, not higher, than the current optimistic predictions.

The problem is the nature of that growth. In the past century both parties and the economists behind them have focused on the business cycle, their theory being that for the country to grow, that cycle must be managed, preferably by them. But economic growth requires something else: trust that deals and contracts will be honored by all, including governments. Pensions are contracts, even public pensions like Social Security.” 

—Amity Shlaes, December 14, 2010.

ATLANTA—  The more I’m reading and understanding about the income tax compromise that Barack Obama has worked out with Congressional Republicans, the less I like about it.  The Heritage Foundation offers some insightful critiques of how the compromise is playing out.  In short, it is becoming a boondoggle of liberal spending initiatives, on top of offering only a short-term extension of the Bush tax cuts.  No wonder treasury yields are skyrocketing since the announcement of the plan.  However, one element of the plan that I initially liked was the one year payroll tax holiday being offered.  However, Amity Shlaes, a conservative economic historian, attacks even that element of the plan as being unhelpful. Her analysis is quite unique and unexpected.  You can read it here.

In short, she argues the payroll tax holiday breaks the social contract that Social Security represents with the American people. In essence, there is little difference between this contract breakage and the treatment by the U.S. government of the General Motors bondholders two years ago.  She contends that by breaking this contract, it will further destabilize a key element of economic growth- the faith market participants have that contracts and agreements will be honored.

Her critique is a thinker, from my standpoint.  I still like the idea of the payroll tax holiday, because I believe it places a small wedge between tax payers and their love of Social Security, which could open up their minds to further (and necessary) reform of the system.  Mrs. Shlaes is definitely a proponent of reform in Social Security, she alludes to that towards the end of the article.  But she is arguing that breaking the social contract in this way is not the best means of effecting that reform.

Interesting take.  What are your thoughts?

About Stephen VanNuys
Stephen Van Nuys is a happily married CPA who works for a large accounting firm and resides in Atlanta, Georgia. He is a Christian and an avid follower of politics and current events. He is also a big-time baseball fan. Stephen and his wife are runners, having completed multiple 10k’s and half-marathons between them. They place importance on being environmentally conscious and actively serving others through their church and other outlets. Mr. Van Nuys’ political leanings are socially conservative and economically libertarian. He may express his perspectives on current events strongly, but he welcomes disagreement, particularly where others believe his missives to be ill-informed or just plain wrong! He enjoys good debate and discussion and is writing here as much to express his perspectives as he is to learn about others.

3 Responses to The Conservative Argument AGAINST Barack Obama’s Social Security Payroll Tax Holiday

  1. Great post Stephen. The best part of her article was the following:

    The retirement system faces long-term shortfalls, regardless of growth. Our economy is not, currently, shrinking. If in a non-crisis our leaders are willing to widen that Social Security debt by one penny, then, logically, they will be willing to trash the program more dramatically should a 1930s- style double dip take place.

    I agree something has to be done for this beast of a program besides money printing, which is basically all this is…

    Just this past week Bernake has already started hinting at QE3 in his infamous Sixty Minutes interview.

    • What a boondoggle QE3 would be. QE2 is already a bust – long-term interest rates have soared in the weeks since it began. I think the fear of inflation is starting to take hold in the markets…

  2. mainenowandthen says:

    The “Social Security contract” was broken long, long ago – practically at its inception when the government immediately assigned revenues from the tax to supplement shortfalls in other programs.

    I have to agree that something needs to be done and reform is vital. There are a number of worthwhile plans that would help.

    What is not helpful is the propensity of the Democrats to load up any legislation with additional payoffs and pork for their constituents and the apparent willingness for an unacceptable number of Republicans to go along with these tactics.

    The unveiling of the most recent Appropriations Bill is a prime example and a true obscenity! Any politician who votes for it should be removed as quickly as possible.

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