Occupy Movement and the Economy

The Fix: The Peddling of Jobs and Tax Cuts
in Order to Bleed Social Security

By Ben Schreiner

When first unveiling the American Jobs Act to a joint session of Congress at the beginning of September, President Obama was quick to assert that it contained “nothing controversial,” “nothing radical.” It is a refrain the president has oft repeated, as he has traversed the country seeking to rouse popular support. Of course, whenever a politician deems it necessary to make impassioned claims of moderation we can be assured that there is indeed something rather controversial, or even radical, adrift after all (a point to which we shall return). But in a certain respect Mr. Obama is right, for his jobs proposal is remarkably timid.

According to the most favorable estimates of the nonpartisan Economic Policy Institute, the president’s jobs proposal would likely help to create a maximum of 4.3 million new jobs. But even by these most optimistic of estimates, we see, the president’s proposal does little to cut into the swelling ranks of the nation’s reserve army of labor. Bear in mind that a staggering 14 million Americans remain unemployed, while over ten million more are either underemployed or have simply dropped out of the labor force all together. Aiming for a maximum creation of 4.3 million new jobs, therefore, is an astonishingly inadequate target.

Obviously, all calculations regarding the potential job creation of the president’s jobs plan assume that it will pass the Congress intact. In the current political climate, however, this is an assured impossibility. Given this, the American Jobs Act can be read as little more than a 2012 campaign document, as President Obama looks to once more don the populist cloak (just how beneficial such a meager jobs proposals will be in this election year transformation remains to be seen).

There is, however, one provision within the president’s plan that has garnered genuine Republican interest; namely, a further reduction—or “holiday”—in the FICA, or payroll tax. The payroll tax, one will recall, is the tax used to finance the Social Security Trust Fund. Currently, the employee payroll tax resides at a rate of 4.2 percent, already having been reduced from 6.2 percent in the tax deal struck between the president and the 2010 lame duck, and Democratically controlled, Congress. The American Jobs Act calls for yet a further reduction in the employee payroll tax, to a rate of 3.1 percent; in addition, the act proposes substantial cuts to the employer payroll tax as well. The administration trumpets that such measures will save the average American $1,500 in taxes next year.

In effect, then, what President Obama really proposes is a raid of the Social Security Trust Fund so the average American family can pocket extra tax savings. Although $1,500 is no doubt a significant sum for a working class family, the overall economic effect of such a tax cut will be near nil. The average American, after all, remains heavily indebted. Thus, instead of spending an additional $1,500 next year, Americans would be likely to put any added tax savings toward paying off current debts. This means that any tax break is unlikely to go towards appreciably stimulating aggregate demand—a prerequisite for job creation.

In this case, a payroll tax reduction will see funds siphoned out of the Social Security Trust Fund, funneled through the indebted working class, and ultimately onto their final destination: the nation’s financial institutions and the financial class. In other words, an employee payroll reduction will be yet a further public subsidization of the financial sector—funded, no less, by the retirement savings of the nation’s working class.

The administration, though, as we might expect, claims that a payroll tax reduction will in no way harm the Social Security Trust Fund. The temporary reduction in revenue, they reassure, will be made-up through the same funding scheme agreed upon in the 2010 tax deal; that is, additional funds will be collected from the general revenue stream (i.e., all governmental funds collected for unspecified programs or purposes) to supplement the payroll tax “holiday” shortfall. There are, needless to say, substantial problems with these assurances.

To begin with, deeming a proposed payroll tax reduction a “holiday” implies that the rate will eventually return to its original level (i.e., 6.2 percent). What a ruse this is. “Tax holiday” in the Washington lexicon signifies nothing less than a permanent tax cut. As Republicans have steadfastly insisted ever since their successful negotiations to extend the Bush-era tax cuts: letting temporary tax breaks expire, or “sunset,” as originally planned amounts to a tax increase.

This logic, though, is by no means limited to Republicans. As the president argued in his speech delivered to the joint session of Congress in September,

“If we allow that tax cut [the 2010 payroll reduction] to expire—if we refuse to act—middle-class families will get hit with a tax increase at the worst possible time. We can’t let that happen. I know that some of you have sworn oaths to never raise any taxes on anyone for as long as you live. Now is not the time to carve out an exception and raise middle-class taxes.” [Emphasis added]

With such a bipartisan consensus coalescing around what constitutes a tax hike, it is impossible to imagine when—if ever—the payroll tax will return to its pre-2010 levels. Expect, then, this further payroll tax “holiday” to remain long after its scheduled “sunset.” As a result, Social Security will necessarily become ever more reliant on funds from the general revenue stream, which brings us to our next problem.

The tying of a greater portion of Social Security’s funding to general revenue inherently couples the program to the deficit. And deficit reduction, we must remember, begins, and usually ends, with programs funded via general revenue. Hence, a Social Security program funded with general revenue will be placed “on the table” in every future deficit reduction debate. The Congressional chopping block awaits.

For all the legislators and pundits falsely crowing that Social Security is already broken, a greater gift is not imaginable. The orchestrated rhetorical assault on Social Security will become a self-fulfilling prophecy. Emboldened legislators will continue to cry of Social Security’s looming insolvency, leading to “reforms” to “save” the program. Of course, such “reforms” will only further destabilize funding, thus creating yet more cries of insolvency and yet more “reforms.” The fact that Social Security Trust Fund remains solvent at present—holding $2.6 trillion in assets, with project solvency until the year 2036—will not matter. Over time the Social Security “fraud,” or “Ponzi scheme,” of the right’s imagination will come to be legislated into reality. And it will have been the Obama led Democrats who will be responsible for laying the groundwork.

The fix, we see, is in. A tremendously popular and successful pillar of the American social safety net (no doubt, the principal reason behind elite ire) is set-up to be bled to death. Now, this would certainly appear to be a rather “radical,” development. Although, perhaps not. Is it still really “radical” to govern against the will of the majority in the American system of democracy?

The answer, it appears, is that it is not. For, you see, we live in an illusory world—nothing is what it seems. Tyranny is draped with the veil of democracy, just as class war is masked by calls of “shared sacrifice.” The ploy to bleed Social Security will hence be neatly packaged and sold to the embattled public as an actual boon to the working class—lowering their tax burden and creating much needed jobs. The working class will be peddled tax cuts and jobs, as their retirement savings are systematically looted. And with the liberal guise of Obama functioning to provide the ultimate cover, the gambit may very well succeed.

Nothing spells opportunity quite like a crisis.

Ben Schreiner is a freelance writer living in Salem, Oregon whose work has appeared in Z magazine and, among others, the CounterPunch and Political Affairs Web sites. He may be reached at

—September 30, 2011