I've had a number of folks writing in over the last couple days asking, why -- oh why oh why oh why -- aren't you talking about the fact that the Bush administration is dipping into the Social Security surplus monies to fund the tax cut? Well, it's a good question, I suppose. But the real reason is that it's just so transparently obvious, and the administration has been caught so totally red-handed that it's hard to know quite what to say.
You start to see now why the Mitch Daniels and company put so much time in rejiggering the budget numbers to make them seem like the administration wasn't dipping into Social Security funds. Even with a billion dollars over the Social Security surplus funds the White House could hold the line on spending and try to argue that the president was trying to save the Social Security trust fund against raids by big spending Democrats.
But now the truth is out. The president's budget used up the non-Social Security surplus before the Democrats even got to sit down at the table. No degree of subterfuge or dishonesty can hide the fact that the president broke his pledge entirely on his own. Not even a master prevaricator like Mitch Daniels can undo the damage.
So that's what we know. But let's consider another part of the equation that's getting very little attention. Quite apart from how using the Social Security surplus affects the long term solvency of Social Security, using these funds also changes just who carries the burden of funding the government.
Income taxes are progressive -- that is to say, you pay a higher proportion of your income the more money you make. But payroll taxes are not only flat, they're actually regressive (very high income earners pay a lower percentage than folks at the poverty line) -- since they cut off at around $80,000 a year of income.
There is a reasonable argument (one which I and some other policy types don't entirely agree with) for Social Security being funded this way. But not the normal functioning of government -- which we've long seen fit to fund with graduated, progressive taxes.
So the net effect of floating the tax cut with Social Security revenues is to take the burden of funding the government off the most privileged (who carry the biggest burden paying for general revenue funds) and place it on the least privileged (who carry the greatest burden paying for payroll taxes).
Just another point to consider about the priorities behind the Bush tax cut.
Next up, how payroll taxes from the 1980s helped win the Cold War!