The Editors — Conservatives in Good Standing one and all — qualifiedly like the tax deal. Moderate Republicans of the Main Street Partnership variety like it. Even lower-case-p pragmatic progressives like Ezra Klein like it. The only folks who really hate it are liberal ideologues, and to hear them say it, this deal is final proof that Obama is a man who can’t be trusted, a wimp who has sold out the Left and received nothing in return.
I like the tax deal, on balance, too. And I think this is a tactical defeat for the president. But let’s put things in perspective: Barack Obama effected the single greatest expansion of the welfare state in 40 years, over tremendous procedural and substantive hurdles, and lost 20 percent of the population and the House of Representatives in the process. With his governing majority greatly diminished, he accepted a two-year compromise that, by the way, smuggles in a few hundred billion extra in deficit-financed stimulus with the wildly underappreciated rhetorical advantage of not having to call it stimulus. And, depending on the strength and speed of the recovery, it just may turn into a big winner in time for the 2012 election season. Meanwhile, some folks on the Left act like he surrendered Washington to Lord Cornwallis. Liberals are never happy.
UPDATE: I now see Rich makes much the same point, and better, below.
The part that involves the FICA tax cut is bothersome.
Social Security benefits are calculated as a function of your average indexed (to inflation) monthly earnings (AIME) over your 35 highest years of earnings.
So if you make $100,000 this year and you retire a couple of years from now, that $100,000 will get factored into your retirement benefit calculation. Unless the administration is proposing a one-year modification in the way the benefit is calculated, the rate of FICA tax that you pay is irrelevant to the calculation.
So what this does is give workers some more money in their pockets this year, at the expense of the rapidly-dwindling Social Security trust funds. And when those workers retire, they'll draw the same benefits that they would have if the temporary tax reduction hadn't been enacted (barring the above-referenced jiggering of the benefit calculation). Result: Social Security goes bankrupt a little ahead of schedule.
(Truth in advertising: I worked as a claims representative for the Social Security Administration 1975-1988, but make no claim as to how up-to-date the above information is.)
Reply to this commentLinkReport AbuseBernie:
There is no Social Security Trust Fund holding the excess FICA and Self-Employment Taxes received by the federal government over the past 75 years. This "trust fund" is invested in sovereign debt of the United States. The federal government can satisfy this sovereign debt by extracting taxes from the U.S. citizenry or by printing money. In other words, the Social Security Trust Fund is the same thing as me telling myself that I am a millionaire because I am holding a million Dollar promissory note payable by me.
Reply to this commentLinkReport Abusecdscott, you're right, of course. "Trust fund" is a lot easier to write than "sovereign debt of the United States." When the excess FICA was originally deposited in government bonds, nobody thought the day would come that we'd wonder if the government would actually have the money to repay the bonds.
Reply to this commentLinkReport AbuseNo excess FICA was deposited in government bonds. It was spent on bombs and welfare and NASA and the endowment for the Arts and all sorts of regular budget and extra-budgetary expenditures. For at least 30 years, FICA revenue has gone in total to the "general fund" where it is spent along with all other revenue and lots and lots of additional credit obtained through the sale of treasury bonds, the value of which is based on the assumption that the money supply won't be inflated.
But when you pay debt with more debt (and are really only paying the minimum balance due --which is less than the interest-- you don't reduce debt.
Even in the best of times when you're able to transfer from a higher interest rate on one credit card to another with lower interest, and then taking a cash advance to make your minimum payment-- eventually you get to a point where interest rates can't go lower. We don't have the option, but the government does, and that's to inflate (or reduce the value of) money -- effectively creating negative interest.
The problem is that when that happens, people won't buy government bonds because the good faith (sovereign debt) of the United States to pay it's debts is destroyed when inflation exceeds bond interest.
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