The deal to extend the so-called payroll-tax cut is being hailed as a fair compromise by many in Washington. In reality, it represents Washington at its worst. The deal once again highlights the triumph of short-term political expedience over the best long-term interests of the country, and should remind the 91 percent of Americans who don’t have a high opinion of Congress why they are right.
First, the agreement is an act of intergenerational theft — stealing from seniors and our children.
Instead of finding $100 billion of savings in our grotesquely bloated budget, the White House and Congress took the easy way out and borrowed the money. What makes this inexcusable is how easy it should be to go after major savings. For instance, the Government Accountability Office has identified at least $100 billion in annual waste and duplication in the federal budget. GAO will release another report at the end of the month that will likely put that figure even higher. The White House and Democrats in Congress made zero effort to use those suggested offsets because they viewed doing so as an abstract ideological goal. But living within one’s means is not an abstract ideological goal. It is a fact of life for millions of families who don’t have the power to borrow money on a whim.
To make matters worse, that $100 billion was borrowed in perhaps the most destructive way imaginable. The agreement robs $100 billion from Social Security with the hope that China and other creditors will loan us the money to replenish that fund and pay Social Security benefits in the future. The problem with Social Security, of course, is that the trust fund is already depleted. Social Security is running a cash-flow deficit that will total $630 billion in 2021. Social Security is not in a position to fully fund its own benefits, much less gimmicky election-year stimulus spending disguised as a tax cut.
Speaking of tax cuts, the deal is not really a tax cut at all, but a deferred tax increase that will needlessly add to our national debt and further depress job creation. We’ll have to borrow the money, at interest, that we have stolen from Social Security. Plus, our economy is so overleveraged that borrowing money for stimulus spending has a negative multiplier effect. Economists Carmen Reinhart and Kenneth Rogoff explain that when debt equals 90 percent of GDP (our debt is currently at 100 percent of GDP) economic growth slows by about one percentage point of GDP growth per year. If normal growth is three or four points per year, a one-point slowdown means we are slowing our economy by 25 to 33 percent. Former Obama-administration economist Christina Romer estimates that each point of GDP growth represents about one million jobs. Therefore, slowing our economy by one point of GDP means one million jobs are not created.
If the goal of this agreement was to put more money in people’s pockets, sending them a check would have been the best course. But that wasn’t the primary goal. The primary goal was to play election-year politics and embarrass Republicans.
For months, Republicans have lamented that President Obama has stolen the tax issue and outmaneuvered them politically. They are correct. The best response, though, is not to repeatedly capitulate and feign victory but to lead with a bold, compelling, and comprehensive tax-reform plan that will put more money in people’s pockets than President Obama’s too-clever-by-half payroll-tax cut that cannibalizes Social Security.
The fact that Congress has not reformed the tax code in 25 years — since Reagan’s historic 1986 reform — is a disgrace. Both parties have had a schizophrenic approach to reform that says, “I support simplification; give me complexity” and have kept rates artificially high by defending their favorite loopholes and deductions.
A bold tax-reform proposal that wiped out today’s code could cut rates in half for millions of Americans and would transcend today’s small-ball debates about the payroll-tax cut and even the Bush tax cuts. The Simpson-Bowles proposal, which received bipartisan support, suggested lowering today’s rates of 15, 28, and 35 percent to 8, 14, and 23 percent. Reducing spending inside and outside the code could push rates even lower and would spur tremendous innovation and job creation.
President Reagan called his tax-reform act “the best anti-poverty bill, the best pro-family measure, and the best job-creation program ever to come out of the Congress of the United States.” He was right. Even more telling was what Reagan said after he signed the measure. “I feel like we’ve just played the World Series of tax reform,” he said. “And the American people won.”
It’s about time we win another victory for the people, not the politicians. Twenty-five years is long enough.
— Senator Tom Coburn, M.D., is a member of the Senate Finance Committee.
"If the goal of this agreement was to put more money in people’s pockets, sending them a check would have been the best course. But that wasn’t the primary goal. The primary goal was to play election-year politics and embarrass Republicans."
Momma always says that people can only embarrass you if you let them . . . or something. Otherwise, very well put.
Reply to this commentLinkReport AbuseSeems the GOP has gotten pretty proficient at getting embarrassed by the Democrats.
Reply to this commentLinkReport AbuseWell, Senator, too bad for all of us that your tribunal's minority members are so thoroughly tongue-tied, and so thoroughly afraid of their own shadows, to be able to make the argument you did.
That's why they don't make it. They don't know how, they don't sound cogent when they do, and they're too afraid to try.
Can you folks start recruiting some more articulate candidates?
By the way, sir, you can relax a little: There is not one person in the nation who either thinks an extra few bucks per paycheck is spurring any job growth, or who thinks that it makes any sense to fund a pittance of a payroll dribble through a social security program that itself is financially insolvent.
The low approval of Congress transcends party affiliation, sir.
And your Senate members on the other side have far more turf -- conservative turf -- to defend.
Godspeed sir. And tell Harry Reid I say good luck to him in Nebraska, Montana, North Dakota, South Dakota, Arkansas, and Missouri.
Blow him a kiss for madisonian, will ya?
Have a safe flight back to Oklahoma.
Reply to this commentLinkReport AbuseWith all due respect, Senator, if you and your party cared about the budget deficit you would not have supported the Bush tax cuts or Medicare part D (unfunded). You would have registered at least a little concern about the cost of the wars in Iraq and Afghanistan. You would not have forced the lowering of the US credit rating by playing games with the debt ceiling (increasing our borrowing costs).
In the view of most Americans, Republican Senators have no standing to complain about deficits.
Reply to this commentLinkReport AbuseCoburn for President?
Reply to this commentLinkReport AbuseI wonder if another NRO poster could answer a question for me. Our national debt, in round figures, is $16 trillion. That figure consists of two parts. One part consists of about $11 trillion of money that lenders paid into the U.S. Treasury, in exchange for a promise to redeem their principal at some point, and to issue checks to pay interest to them in the meantime. The other part consists of about $5 trillion from receipts of payroll taxes mandated by the Social Security and Medicare programs. In exchange for the transfer of that money into the general fund, Treasury wrote IOUs to SS and Medicare, and also promised to credit SS and Medicare with the accrual of interest.
The reason we have been able to take the $5 trillion in payroll tax receipts and spend it, over the past 70 years, is that this is the amount by which payroll taxes coming in have exceeded benefits going out. We have recently crossed over the line, such that today the payroll taxes coming in are not enough to fund the benefits going out. The Treasury is now making up the difference from the general fund, and in exchange SS and Medicare are returning to the Treasury an equivalent dollar amount of IOUs.
At the same time, under existing law the national government has an obligation to pay out benefits to current workers, in an amount which will exceed payroll tax receipts by 70 to 100 trillion dollars during these workers' lifetimes, depending on the assumptions you apply.
So here is my question: what is the difference between the national government's obligation to start paying out the $5 trillion memorialized by the intra-government IOUs accumulated by Medicare and SS over the past 70 years, and the obligation to pay out an additional 70 to 100 trillion dollars after those IOUs run out? I really don't see any difference.
A corollary question is, doesn't the inclusion of the $5 trillion in our national debt create an apples and oranges situation when comparing our national debt to that of any other country? That is, I would expect that most other countries' national debts consist only of notes they have issued to outside lenders, in exchange for the use of their (mostly private) money. By contrast, nearly one-third of our national debt consists of the IOUs issued to SS and Medicare. Since it appears to me that these IOUs aren't really the same kind of debt at all as a regular treasury note issued to a real lender, it seems bogus to me to describe our national debt as equal to 100% of GDP, in the same way as one would talk about the debt to GDP ratios of Japan or Italy.
It seems like everyone should know the answers to these questions, but I've never seen the answers.
Reply to this commentLinkReport AbuseGenerally well put. However...
"The agreement robs $100 billion from Social Security..."
Repeating this lie doesn't really accomplish anything. There is NO "trust fund", and you certainly know that fact. SS is simply a tax and a political promise, and nothing more. At some point in the future that money won't be there, and won't be paid.
Also, if the GAO can only find 100 B waste, they need to find some actual conservatives to put in that office.
Reply to this commentLinkReport AbuseThis would be a great speech, if only Tom Coburn weren't giving it from the Senate.
It's the United States Senate where conservatives are letting us down the most, not in the House. Yes, the Dems still hold the Senate, but our team isn't even standing up as a credible set of opponents. There is no party discipline. And Tom Coburn giving speeches doesn't change that, even if he's right.
Reply to this commentLinkReport AbuseThe Social Security Trust Fund is a fiction. It's just a pile of IOUs. The sooner it is depleted and exhausted, the sooner the whole scan is ended. What irony that Tom Harkin Socialist-Iowa denounced the reduction of the payroll tax. Game over. It is welfare.
Reply to this commentLinkReport AbuseI propose Republicans quintuple every Democrat spending proposal. If they don't object, quintuple that. Keep going until they accuse you of outrageous overspending. Then demagogue them.
Reply to this commentLinkReport AbuseWe're neck deep in pretend money already. Why not?
180 out,
Reply to this commentLinkReport AbuseThe difference between the five trillion and the big number is that the five trillion must be paid back. Of course, the five trillion is not an asset to the federal gov't because they owe it to themselves so it nets to zero. The trust fund isn't a fiction. Rather it is cancelled out by the obligations of the government.
The big number is different because the government can change benefits for SS etc. In accounting parlance, liabilities must be unavoidable. The obligations under SS etc. are avoidable by the government by changing benefits. The problem is, the longer we wait the steeper the changes must be. Social security could be saved really easily at this point in time with a few minor changes. We just need to change it now (or soon) to make it easy.
I will say this.
I probably am not inclined to agree with Senator Coburn on much. But he is a principled man whom I respect.
If the Republican Party had more Senator Coburns and fewer Senator DeMints, then there probably would be a really good chance to come to some sort of agreement addressing the our long-term deficit and debt problems.
Nonetheless, I think the payroll tax deal is a good idea, even though I agree that unpaid for tax cuts now are anything but free. The time to address the deficit is after the economy is firmly on the road to recovery.
Reply to this commentLinkReport Abuse"...our grotesquely bloated budget..."
It's amazing, but I can no longer read that adverb without instantly hearing the entire paragraph being spoken in Newt Gingrich's voice. It's as if he now holds the copyright on that word!
Reply to this commentLinkReport Abuse"Speaking of tax cuts, the deal is not really a tax cut at all, but a deferred tax increase that will needlessly add to our national debt and further depress job creation." This is true for every tax cut which doesn't pass with matching spending cuts --- which is to say, all of them.
Reply to this commentLinkReport AbuseWas there something objectionable in my comment? Why was it blocked?
Reply to this commentLinkReport AbuseIn the recent publication by the Ronald Reagan Presidential Foundation and Library entitled The Notes, there is a quote attributed to Alexander Hamilton. "It will be of little avail to the people that laws are made by men of their own choice if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood: if they be repealed or revised before the are promulgated, or undergo such incessant changes that no man who knows what the law is today can guess what it will be tomorrow."
Senator Coburn, bravo, now get it done.
Reply to this commentLinkReport AbuseIf Senator Coburn is willing to use Democrat party talking point delusions to demagogue this issue, he is part of the problem, not the solution. There is no trust fund. The only generational theft going on is the current system in which the young pay taxes to the US Treasury who, through accounting sleight of hand, turns around and issues checks to the richest demographic in the country, including Warren Buffett.
Here is a simple principle for your average US Senator, when the Democrats offer a tax cut, you respond with "great idea! Let's double or triple it and make it permanent." When they howl in response, you'll know you are on the right track.
Reply to this commentLinkReport AbuseSenator Coburn, bravo, not get it done.
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