by | ARTICLES, BLOG, ECONOMY, FREEDOM, GOVERNMENT, OBAMA, POLITICS, SOCIAL SECURITY, TAXES
Last week, the Washington Examiner did a nice job covering the growing Social Security Disability Insurance (SSDI) crisis, and Congress’s recent response to it. The issue at stake is the 2016 benefit adjustment, which would cut 20% of benefits for more than 10 million SSDI recipients:
“Many Democrats want to sweep the problem under the rug with an accounting gimmick that would merge the disability trust fund with the general Social Security trust fund, which, on paper, isn’t expected to be depleted until 2034. But House Republicans passed a rule [Tuesday] to protect the broader Social Security program from being raided.
In 1994, the payroll tax rate was reallocated between Social Security’s two trust funds to avoid depletion of the disability insurance fund, but another reallocation would ignore Social Security’s long-term funding issues.”
The idea for reallocation came from the bleak 2014 Social Security Trustees report, which described, “Lawmakers may consider responding to the impending [Disability Insurance] Trust Fund reserve depletion, as they did in 1994, solely by reallocating the payroll tax rate between [Old-Age and Survivors Insurance] and DI. Such a response might serve to delay DI reforms and much needed financial corrections for OASDI as a whole. However, enactment of a more permanent solution could include a tax reallocation in the short run.”
The reallocation response would be merely a bandaid, ignoring the overall Social Security funding crisis, which is why the House passed a rule prohibiting reallocation unless it is combined with “benefit cuts or tax increases that improve the solvency of the combined trust funds”. That is to say, there must be some act of long-term reform.
Apparently, the Left was having none of that; responses were swift and sharp. The LA Times headline screamed, “On Day One, the new Congress launches an attack on Social Security”. The paper further described how,
“The rule hampers an otherwise routine reallocation of Social Security payroll tax income from the old-age program to the disability program. Such a reallocation, in either direction, has taken place 11 times since 1968, according to Kathy Ruffing of the Center on Budget and Policy Priorities.
But it’s especially urgent now, because the disability program’s trust fund is expected to run dry as early as next year. At that point, disability benefits for 11 million beneficiaries would have to be cut 20%. Reallocating the income, however, would keep both the old-age and disability programs solvent until at least 2033, giving Congress plenty of time to assess the programs’ needs and work out a long-term fix.”
Clearly, Democrats doesn’t see the irony of having to reallocate 11 times already as an major fiscal problem. I’m betting that every time there was a reallocation, it was to give Congress “plenty of time to assess the programs’ needs and work out a long-term fix.” In other words, kick the can again because the issue is politically unpalatable.
The Washington Examiner spoke to Charles Blahous, a Trustee of the Social Security and Medicare Trust Funds, about the Social Security situation. Blahous described how “the problem is not that disability needs a bigger share of the overall payroll tax than it now has, but that Social Security as a whole faces a financing imbalance that needs to be corrected. The single most irresponsible response to the pending [disability insurance] trust fund depletion would be to do nothing other than paper it over with a reallocation of funds, delaying meaningful corrective action as long as possible.”
You can be sure the Dems will use this issue as a way to stir up the base between now and 2016. Kudos to the new Congress for being willing to discuss and tackle the insolvency problem instead of moving funds around automatically.
by | ARTICLES, TAXES
A recent article in the WSJ discusses a newly-released report. Tax breaks, for all segments of the population, total more than $1 trillion. Such a staggering figure — roughly the size of the annual federal deficit budget — reinforces something I have stressed repeatedly: the need to overhaul the tax code.
However, the report also
citing political opposition, technical challenges and other reasons, said that “it may prove difficult to gain more than $100 billion to $150 billion in additional tax revenues” by eliminating tax breaks. That likely would leave little for reducing tax rates, perhaps only enough for one or two percentage points in the top individual rate, while maintaining the same level of revenue
The top ten tax breaks are:
by | BUSINESS, ECONOMY, TAXES
There are rumors circulating around the country that the Congressional Super Committee may take action that would immediately repeal the $5 million gift tax exemption by Thanksgiving. This is sending countless tax lawyers and accountants scurrying to complete gift planning that the law tells them they have until December 31, 2012 to complete. The lifetime gift level tax exemption was temporarily increased to $5 million under the 2010 Tax Relief Act for 2011 and 2012. Neither the Obama administration nor Congress have commented on these rumors, causing great concern and uncertainty. An about-face reversal with little notice would be extremely disruptive, unfair, and inequitable.
Regardless of how many or few people this change would affect, the fact that this Congressional committee would have the ability to alter the law midstream on the taxpayers who have been working on their long-term plans is outrageous. Any taxpayer – wealthy or not – should be entitled to be able to rely on their current tax law when making tax decisions, and, if a law might be modified, have ample time to implement necessary changes. The real possibility that the aforementioned law might be changed as of the super committee deadline is unconscionable.
This disruption, just by the speculation that is not being refuted or confirmed, is causing great stress. Most of the taxpayers to be impacted by such a change are the very people who create the jobs in this country. With business people dropping everything to deal with these rumors which could have major effects on their business transition plans, it could also impede job growth.
If there were to be such action taken by the Super Committee, it is likely to do serious harm to the United States economy. But more importantly, it reveals the shallowness of any real commitment to tax equity and transparency. The country seems to be rallying around the concepts contained within the Simpson-Bowles and the Rivlin-Domenici reports, both pushing for greater transparency and comprehensive and reliable tax reform. It would be abhorrent if this ‘new direction’ had, as its first implementation, a huge gotcha moment.
by | ARTICLES, ECONOMY, TAXES
Tom Palmer, a senior fellow at the Cato Institute, penned the following piece over at Policymic. Tom rightly gets to the heart of the matter in his summation at the end of the essay.
“Government debts and printing-press money will harm future generations. It’s unfair. It’s immoral. And it’s going to be solved not by occupying Phoenix, or Wall Street, or Atlanta, but by demanding that spendthrift politicians stop the bailouts and the cronyism, put the brakes on spending, and pay attention to a truly radical concept: arithmetic. Those are sound Tea Party values.”
Should Americans Support the Tea Party or Occupy Wall Street?
by | ARTICLES, ECONOMY, GOVERNMENT, TAXES
Charles Krauthammer has an interesting strategy for debt negotiations — short term solution now to avoid default, which will give a both sides a little extra time to formulate a long-term plan. The intriguing thing to me about this approach is that it forces Obama to make hard decisions during his campaign season. Would Obama stand and do what is right for the budget and economy regarding entitlement reform and tax increases, or will Obama push any major reform initiatives to the Republicans — and then swoop in to protect certain important voting blocs from any proposed big bad cuts? Would such a strategy hurt or help Obama when most of the country wants to reduce the size and scope of government. Read Krauthammer’s essay about Obama’s failure to make any substantive changes thus far and what this could mean for both sides in 2012.
