Various media outlets have reported a great deal of anger, from citizens and politicians alike, that the “fiscal cliff” settlement approved last week did not extend the two-percent reduction in Social Security withholding tax that’s been in effect two years.
That shortcoming, the argument goes, costs someone earning $50,000 a year a total of $2,000.
The reaction is indicative of America’s perception about taxation. The shortfall in the Social Security system has been well documented, yet the public two years ago embraced the decision to cut payroll taxation for Social Security “temporarily” by two percentage points as a buffer to the recession, feeling that having those extra dollars in their pockets then was more important than the solvency of the nation’s most important and already endangered retirement program.
That short-term mindset is widely held by politicians and the public, to the detriment of the long-term solvency of Social Security and the U.S. government. It is accompanied by an extreme reluctance to revert back to “normal” levels of taxation when the immediate crisis wanes, as the reaction last week demonstrated. Restoring the funds cut “temporarily,” is universally damned as a “tax increase.”
Given that the growth of the U.S. debt is a grave concern, the President and Congress should refrain from all further tax cuts unless they’re offset by spending reductions or new revenue. And if our leaders ever expect to truly whittle away the deficit, they’re going to have to acquire the discipline to weigh all legislation against its impact on both the current budget and the growing federal debt — its short-term benefit vs. the long-term cost.
On the balance sheet, a tax cut and a spending initiative have the same effect on the deficit. Americans have varied opinions on how the nation can accomplish deficit reduction, but it can’t happen if the public and the politicians gladly adopt tax cuts and new spending initiatives but refuse to implement tax increases and spending cuts. The math, even by government standards, just doesn’t work.
