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GOP Caves on Spending Restraint to Extend Payroll Tax Cut

What should have been done on payroll tax deal for the best interest of the country? GOP caves to ensure tax cut is extended.

In a recent discussion with a more liberal friend, he was making the point that cutting spending would be of concern for the current economy. This point of view could have some merits in 2009, although it would never be a good argument to waste money like the bulk of the stimulus package.

Even if that idea had merit, it does not now. Our economy is under assault from the Democratic Party and President Barack Obama as I have detailed before. But one of the great concerns with Obama is his absolute refusal to take spending and debt seriously. I even saw experts a year ago stating if we cut the budget by 100s of billions of dollars it would be positive for the economy. This is because one of the great fears for the private sector is the effects of the European debt crisis coming to the U.S. The reason I bring this up, is I think this relates to what we should have done about the payroll tax cut that both parties have agreed to extend.

Before I state what I think should be done now, I would like to comment on what was done for the two-month deal. As many of you know, I have stated I oppose raiding social security funds so politicians can give us money in an election year. I have suggested making the cut optional, let those who think this is such a great idea keep the cut, but if you take the money this year, when you start collecting social security your payment will be reduced by 1 percent forever. Obviously that is not going to happen, but the point is it is easy to be greedy and demand free money, when you assume someone else will pay for it.

I also stated that it is politically  impossible to stop this. So the objective should be to minimize damage and get the best deal possible. My first problem with what has been done is that the “pay for it” is collected over 10 years. I would suggest the cuts should pay for the spending in no less than two years, so that after that the changes would be helpful to reducing the deficit.

The second issue is the way they decided to collect the money is a 0.1% charge on Fannie & Freddie loans effectively adding 0 .1% to all home loans. My issue with this is the government is covering losses at these firms right now and any money charged for home loans should be used to cover the losses at Fannie and Freddie and not used as a piggy bank. Finally, the House version solving the issue for the whole year was more sensible than the nonsense that came out of the Senate, right before the Senate left town without resolving differences with the House version. At least Boehner did get them to make a slight change to make it possible for payroll companies to handle the two-month law.

What should we have done for the rest of the year? I would suggest a deal on social security reform without a tax increase, but Obama has made it clear he wants no part of any serious attempt at fiscal responsibility. To pay for this bill the cuts should have been real spending cuts to this year’s budget equal to the amount of the money to be spent, or at least the money should be paid back in just two years with spending cuts being permanent as a start on dealing with deficit.

The “pay for” should also be only spending cuts. This would be impressive if the Democrats could have done the right thing for the first time in years. We all know that the Bush tax cuts expire next year and Obamacare adds several new taxes, so raising taxes is already in the baseline and is not a reasonable solution. At a later date we can have the debate, should we cut spending more to save some of the Bush tax cuts. Let’s not muddy the waters with that right now, since there will be no agreement until after the November elections. Instead, making any progress the Republicans have caved to avoid failure to extend the payroll tax cuts.

Now we have a deal that is worse than the sham of paying for it over 10 years. In this new deal we will just raid the social security and fund it with running a larger debt. It was bad enough to steal the surplus from social security. Given the Democrats have no taste for being responsible and that the GOP would lose the optics of this battle this may be the best we can do. We need to focus on getting control of the Senate and winning the presidency. So, for now, losing the battle is ok to give a chance to save the country from the disaster of the Democrats continuing to run the country into bankruptcy.

This will help set the focus for the 2012 elections. Democrats will have proved they will not take the fiscal health of the nation seriously, and are willing to risk everything to preserve their power by hiding from reality and the truth. We have the House willing to pass legislation to deal with our challenges, but Harry Reid and the Democrats in the Senate will not act like adults. Are we going to fix the Senate by getting more conservative members who will be responsible enough to pass a budget and take the future of this country seriously or will we leave Obama – Reid in charge. 

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Craig February 18, 2012 at 09:26 PM
When World War II ended, the debt equaled 122 percent of GDP (GDP is a measure of the entire economy). In the 1950s and 1960s, the economy grew at an average rate of 4.3 percent a year and the debt gradually declined to 38 percent of GDP in 1970. This year, the Office of Budget and Management expects that the debt will equal nearly 100 percent of GDP.
Bren February 18, 2012 at 09:39 PM
Bryant, where were the GOP complaints about profligate spending during the Bush administration? The calls for cuts? The lack thereof undermines the GOPs credibility now. I for one distrust anything the GOP puts forward because of this. They set the stage for this recession, they invaded a country for bogus reasons, and now we are to believe they have anything to offer at all. True fiscal conservatives would have reined G.W. Bush in instead of rubber-stamping. All this lot has to offer now are cuts that protect the ill- and questionably-gotten gains of their benefactors. Enough already.
Eric February 19, 2012 at 12:45 PM
Bryant, I agree with you that dealing with spending should be our priority. I think others that discount this priority are gulity of rationalizing to satisfy their own political beliefs and sometimes hide behind an air of sophistication. However, my point to you is that as we draw nearer a structural economic crisis, there exists a crisis of confidence in our government system and an inability to act: 1. Political system flaws: a. Federal: the anonymous filibuster in US Senate b. State: Frankenstein veto, quarom rule abuses, recall abuse c. All levels: gerrymandered districts, pervasive special interest money 2. Government Incompetence a. Politicians over-riding priority is re-election, NOT the welfare of their districts. These two should be the same, but by engaing in deficit spending to fund boundless broad promises and adjusting policy to cater to special interests, incumbents get re-elected at high rates, spend most of their time campaigning, and little time is spent to solve our festering problems. b. Due to political flaws above, most which are facililated by both major political parties, politicians now adopt more extreme positions and rarely work together. c. In those times when one party controls both the executive and legislature hubris sets in and they inevitably go too far. When government is split, gridlock often results. Big problems loom, Democrats rationalize, Republicans talk - it is not inspiring.
Lyle Ruble February 19, 2012 at 03:24 PM
@Eric...I agree with much you are stating, but if the will is strong enough, it can be fixed. There is no question that many of the government spending has been out of control based on the priorities needed. We have committed two sins; 1) we have spent too much and 2) we have cut revenues at the same time. With cutting revenues to such a radical extent and engaged in two unfunded wars; we had no cushion when the economy dumped. The strategy to control the size of government by starving it is a failed strategy. The problem rests in our legislative bodies with representatives only concerned about reelection. Two suggestions: 1. Government financing of all elections. 2. Term limits. The founders never envisioned career politicians staying in two year offices for decades, such as Jim Sensenbrenner.
OneTermYesWeCan2012 February 19, 2012 at 03:40 PM
Q: What is the difference between Whitney Houston, and a Chevy Volt? A: The Chevy might reach 50.
Randy1949 February 19, 2012 at 04:20 PM
@NObama 2012 -- More underfunded than usual? The is flat out untrue -- Social Security and Medicare have been overfunded since the early 1980s, when the payroll tax was doubled to prepare for the retirement of the Baby Boomers, still decades ahead. The surplus was, as required by law, invested in T-bills. http://www.factcheck.org/2011/07/fiscal-factcheck/ Pay attention to the lists and charts of federal spending versus federal revenue by category. You will see that even in the year 2010, payroll taxes accounted for 40% of federal revenue, while Social Security (20.4%) and Medicare (13.1%) account for 33.5% of federal spending. I have my reservations about cuts to the payroll tax, not because they aren't warranted to leave more money in the pockets of the average citizen to spend and boost the economy, but because the GOP will use any excuse to harp on the deficit to begin to dismantle Social Security and Medicare.
Bryant Divelbiss February 19, 2012 at 10:20 PM
I agree I am afraid neither party has courage to fully take on the issue. However there is a base of the GOP that wants to deal with the spending issue, this is reflected in some of the people in congress, however many in the GOP would prefer to not really deal with the issue since the consensus is the crisis is way down the road. The Democrat base has only interest in expanding government and there is no chance they will be responsible. We need leaders to bring the message to the people to get more support. Even with Bush to some extent we got what we asked for, his biggest new spending, prescription drugs for seniors was popular despite knowing that Medicare had huge unfunded liabilities. Unless the people are willing to back or demand spending cuts even if we pay more ourselves the politicians will not do it.
Bryant Divelbiss February 19, 2012 at 10:32 PM
Bren, As I stated above Bush spending was not good either. What has changed is we have seen how it will end in Europe if we continue on that path and that should wake up people to the need to be serious. The Democrats give us no hope. As for your assertion Bush wrecked the economy that is OK to push for the ignorant masses, but not to thinking people. Both parties created the Housing Crash. Start with Clinton changes to the CRA that set up Fannie and Freedie to buy bad loans. Let's not forget it was Frank - D in Congress and Dodd - D in the Senate who fought reforms to deal with those firms at center of the crash. Obama and Democrats in the Senate stood with Dodd to block reform.
Bryant Divelbiss February 19, 2012 at 10:44 PM
Lyle, You can say by reforming Social Security to use the trust fund and taxes collected and same for Medicare is not keeping promises. But because we made unrealistic promises to ourselves does not justify demanding they be paid. I am willing to retire later and get less benefits to avoid pushing a bigger problem on my children or worse a fiscal crash that hurts everyone badly which is the current plan.
Bryant Divelbiss February 19, 2012 at 10:45 PM
The debt is important but the unfunded liabilities in entitlements are what threaten to take us down. http://www.youtube.com/watch?v=s29X6Wm0J1Q&feature=youtu.be
Bryant Divelbiss February 19, 2012 at 10:53 PM
They had no choice because the media and the people blamed the GOP when the Senate left town before Christmas and House rejected the lame Senate proposal. It became clear if the GOP demanded non-defense spending cuts, even "paying for it" over 10 years the Democrats would refuse and the GOP would get the blame for the tax cut not getting extended again. Polls show people did not want to be responsible with this issue, so it was a loser for the GOP to stand on principle here.
Bryant Divelbiss February 19, 2012 at 10:57 PM
I have not heard any talk from any of the GOP leaders of dismantling either program. Even the original Ryan plan was just a start to keep the promise of Medicare. It is the Democrats by refusing to deal with issue that are creating the likelihood of a much more severe change without the 10 year warning. Tim Geithner to Paul Ryan: "We don't have a definitive solution... We just don't like yours" http://www.youtube.com/watch?v=s29X6Wm0J1Q&feature=youtu.be
Bryant Divelbiss February 19, 2012 at 11:02 PM
Sadly they should have used that extra funding to buy people out of the Social Security system and we would all have been better off. Social Security will not be using the trust fund every year since it runs a deficit forever now. http://www.washingtontimes.com/news/2011/may/13/social-security-deficits-now-permanent-feature/
Lyle Ruble February 20, 2012 at 12:11 AM
@Bryant Divelbiss...You can't cut enough, it must be accompanied by increased revenue. I agree with you that they shouldn't have extended the payroll tax deduction and continued the Bush tax cuts.
Lyle Ruble February 20, 2012 at 12:20 AM
@Bryant Divelbiss...The social contracts are not just promises but actual contractual agreements. You have to remember that after we baby boomers have passed the system will again return to needing less funding. Therefore, your children will not be saddled with an impossible task. It is time to up the contribution to the payroll and medicare tax to assure full funding. As hard as this is to believe, it was the two generations preceding the boomers who caused the problems, including members of the Greatest Generation. If we follow your reasoning you are going to sentence 50 million elderly citizens to penury and shortened life times. Is that your plan, to commit generational genocide?
Brian Dey February 20, 2012 at 12:41 AM
Lyle- You clearly don't understand the economic trouble we are in. Yes, Ryan proposes changes, but change is needed or we kick the can to the next generation, so for someone like you who is extremely social conscience, I cannot fathom how you could not agree that modest changes now, can save the systems you have endeared yourself to. We currently have a debt ratio to GDP of 100%, and growing. Debt is never a good thing and artificially deflating interest is an option in which its affects are minisule as the value of the dollar decreases. If fuel and food products were put back into the inflation rate, we would tipping the Carter years of 17% inflation. Just like in you home budget, you cannot spend your way out of debt. Until someone on your side finally agrees to real cuts, my side will never agree to tax increases. Obama's Budget increases spending $78 billion per year, yet his tax on the rich only generates $2 billion. It is so bad that even Harry Reid won't bring it up for a vote. Until social security and medicare are fixed, until we stop giving people an incentive to not work, until we address the 800lb. gorilla, the scenes you see in Greece will soon come here. We already saw what happens when the entitled are expected to pay like everyone else. Wait until there is no money for entitlements. That day is drawing closer.
Lyle Ruble February 20, 2012 at 01:01 AM
@Brian Dey....As usual you have taken the extreme position. Your politics and ideology have created a position that has turned you and others into the uncivilized. You chose to step away from your social responsibilities and destroy an aspect of America that once made us a great nation. The mantel of governance has passed to your generation and now myself and others are at your mercy. I know where your heart lies and suffer we will, but not silently. Since your generation lacks a moral compass and social conscious, we will continue to be the burr under your saddle and attempt to remind you of the morality you have abandoned to line your pockets with the 30 pieces of silver.
Randy1949 February 20, 2012 at 01:08 AM
@Brian Dey -- Social Security and Medicare have been running at a surplus for the past thirty years. In 2010, payroll taxes accounted for 40% of federal revenue, while the combined cost of Social Security and Medicare accounted for only 33.5% of spending. These programs are not driving the deficit. In fact, borrowed revenues have been used to keep taxes lower. Why is it, then, that these are the first things pointed at by the GOP for 'necessary' cuts? Why does no one ever suggest cutting military spending? Your side already had tax cuts, and it got us into our current mess.
Lyle Ruble February 20, 2012 at 01:15 AM
@Randy1949...You are attempting to state facts that the conservative ideologues will deny there validity or importance. They are bound and determined to reduce and cut the social contracts that we all have been funding for close to 80 years. They are convinced that we are not worth living up to their duty or social responsibility. We can at least respond with dignity and remind them of the corruption they have embraced.
Brian Dey February 20, 2012 at 01:21 AM
Lyle- There is nothing extreme about it. I have nor will I ever advocate from eliminating programs to help those in deed get back on their feet, nor will I advocate for the end of social security or medicare/medicaide. I will never advocate for ending temporary unemployment. Heck, you know as a business person, we have twice as much invested in SS and medicare. But we have used both beyond their original intentions, and it is time to reform the programs. You may not like Ryan's, but not one person on the other side of the aisle has offered a fix. They are so use to promising the worls (and the beltway republicans have done so as well) that it is hard for them to get onboard to finding a solution. I'm afraid Lyle, those who think government is the answer to all our social misgivings, have done more harm to the American dream, than good. I don't want to see a European economy or culture replace life, liberty and the pursuit of happiness. We are watching the extreme socialistic societies crumble, much like the so-called utopian communism di in the 80's.
C. Sanders February 20, 2012 at 01:25 AM
@lyle Award: pontificate patch blooter. Unlike your writings, no insult intended. Just a fact.
Brian Dey February 20, 2012 at 01:35 AM
Lyle- Don't ASSume you know me. I believe that first and foremost, every one has responsibility to be the best that can be, and be provided with the equal opportunity to achieve those goals. There is a bubble, much like the mortgage bubble, coming with regards to SS and Medicare. Soon, there will be more taking out than paying in. It is unsustainable and it doesn't take an economist to figure that out. Right a way, those on the left say that things are being taken away when they are proposing reform. Do I believe that a drug addict has the right to draw from SS for life? That is happening. Lawyers try to convince people to file for SS before their rehab is done. I broke my back at age 27. I was hounded by law firms to collect SSI. The docs considered me 40% disabled. I went on to run a successful company that employed others instead. I'm not saying that those that are legitimately disabled, don't deserve our help. That continues under Ryan's plan. Further, the promise I was made at age 18 isn't the case anymore. Then, at age 62, I was suppose to get full benefits. I now have to wait until I'm 67. Not complaining, just planned to not count on SS for my retirement, as how many in my generation and below are preparing. If anyone is extreme, it is those that say give me mine, and who cares about the next generation. At least the left is consistant. It still always will be the "me first" party.
C. Sanders February 20, 2012 at 01:45 AM
Brian Dey Spot on. Libs like Lyle move the shrouded agenda that remains focused on themselves and somehow someone will find the funds for the next generation. It rings hollow for most.
Randy1949 February 20, 2012 at 01:52 AM
@Brian Dey -- I believe you misspoke. The age for collecting full benefits has never been less than 65. I don't know your age, but my age for full benefits is 66. Over my working life, the FICA was doubled and my age of eligibility for full benefits was raised to 66.
Lyle Ruble February 20, 2012 at 02:50 AM
@Brian Dey...It sounds as if you are wanting to limit fulfilling the needs of only those that you feel deserving. Those afflicted with addiction are suffering from a disease just as any other organic infirmity, but it is considered a failure of morality, therefore they don't deserve help. This is the same attitude and belief that was held in the 19th century of which Charles Dickens wrote of so eloquently. Anyone who is concerned about social justice is labeled as a liberal idiot and only concerned about him or her self out of selfish interest. This kind of cynical accusation is done only to discredit any and all opposition to the narrow view held by the self righteous and sanctimonious right.
Victor Drover February 20, 2012 at 09:05 PM
As we've discussed here in Sussex before, this obsession with the total debt belies a poor understanding of high-finance. http://sussex.patch.com/blog_posts/deficit-reduction-time-to-drop-the-analogies-stupid It's all about the net foreign debt which is not nearly as urgent a problem. Even the GOP has left this issue and are now looking for other distractions from the reality that BHO is gaining in the polls as the GOP nomination circus continues. To me the real question is where are the jobs bills that the GOP promised when the were campaigning for the 2010 midterms?
Bryant Divelbiss February 22, 2012 at 04:25 AM
Lyle, Even if we assumed raising taxes beyond what is in the law now, we need to reform the spending first. Politicians have proven they can raise taxes, but they have never shown ability to cut spending.
Bryant Divelbiss February 22, 2012 at 12:06 PM
Actually the most important lesson is this whole deal is that the Democrats will not be fiscally responsible. I know it is a recurring lesson seen many time in last year. They are unwilling to deal with major fiscal issues facing this country in the coming decades in a responsible manner, for that matter t even propose any solutions. Unfortunately it appears from the polling on this issue the American people are not ready to be adults. Despite the pas GOP record, you have a contrast with the House GOP proposing solutions and the Democrats ignoring the major issues. Only if the GOP campaigns like the House has voted in the last year and the Democrats lose big will we have hope to see change.
Bryant Divelbiss February 23, 2012 at 03:53 AM
Look you can stick your in the sand but even Democrats on Obama's debt commission agree we are facing a coming crisis on our current path. The only question is when. As early as next year, but more likely still years away maybe even over 10. It is not just the debt it is also unfunded liabilities. Yes I read your article all it proved is you do know much about this issue. The reason many conservatives like me are focused on this, is that if we can not repeal Obamacare it is likely the added people dependent on government will make it impossible to get support to cut spending until we are forced too in a painful way. See comments from Democrats Below http://www.washingtonpost.com/wp-dyn/content/article/2010/07/11/AR2010071101956.html http://usactionnews.com/2011/04/democrat-agrees-that-america-faces-%E2%80%98most-predictable-economic-crisis-in-history%E2%80%99-within-2-years/ http://www.washingtonpost.com/wp-dyn/content/article/2010/07/11/AR2010071101956.html
Bryant Divelbiss February 23, 2012 at 03:58 AM
There are 27 Jobs bills passed the house and are waiting on the Senate to act. As with everything it is the Do Nothing Senate in the way of any progress on anything. The same Senate that has gone over 1000 days since passing a budget. For list of bills waiting on the Senate, many Democrats may feel pressured to support some bills so Harry Reid will not allow votes on those ever. http://www.gop.gov/indepth/jobs/tracker

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