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 Richmans' Trade and Taxes Blog

Payroll tax cut -- a new entitlement?
Raymond Richman, 12/22/2011

The cut in payroll taxes proposed for 2011 was greeted by economists as a powerful contribution to economic recovery. There is no evidence that it contributed to recovery at all in 2011. The federal Bureau of Economic Analysis reported that the U.S. Gross National Product, the total amount of goods and services produced in the U.S., increased at a rate of only 1.3 percent in the second quarter of 2011 and 1.8 percent in the third quarter. Economists of Deutshe Bank in 2000, predicted that the economy would grow at a rate of 3 percent by the 3^rd quarter of  2011 without the 2011 tax cut and 4 percent with the tax cut. They were obvously using a clouded crystal ball. We are now warned by the  same economists that failure to pass the tax cuit would cause a downturn in the economy, presumably of 1 percent. They were wrong then and are wrong now. We believe the economy would do quite well if we had a government that was not hostile to private enterprise.

There is also little evidence that any growth at all resulted from the Recovery Act of 2009 which allocated nearly $800 billion dollars to be spent between 2009 and 2011 inclusive. We predicted its failure to induce economic growth because the projected government spending was concentrated on transfers to states, school districts, and local governments to finance their budget deficits (most of them have constitutions which limit their borrowing), wasteful expenditures on environmental projects none of which would be undertaken without major federal and state subsidies, and wasteful subsidies to hybrid and electric vehicles and biofuels, etc.  The President’s proposed $500 billion stimulus package for 2012 is characterized by similar defects as we pointed out in a recent article of this site.

The hostility of this regime to private enterprise is also evidenced by the President’s refusal to allow the building of a pipeline from Canada to the Gulf, his ban on drilling in the Gulf, and by the so-called Environmental Protection Agency’s rulings apparently intended to destroy the productive coal industry. Private investment was also affected negatively by increased business regulations. Given that the payroll tax reductions were expected to be temporary anyway, the first effective for only 2011 and the recent Senate-passed recent two-month extension to February 28, 2012, it is unlikely to promote private investment. To make it permanent would be at the expense of the Social Security System unless the payroll tax cut were made up by other taxes or borrowed funds that add to the national debt and have to be paid by taxpayers in the future. Borrowing to finance the tax cut has international economic repercussions because it weakens the dollar which is the standard for international trade. There are already calls for a new world standard by China, which is beginning to promote its yuan, by the IMF which is promoting its drawing rights, and by the Eurozone at least until the recent collapse of sovereign debt in the eurozone. 

The Senate bill, extending the tax cut for two months, is now in limbo as the result to the House’s refusal to pass it. Its payroll cuts benefit working households and some businesses by giving them a tax cut. The Congressional Budget Office estimates that it, plus the extension of unemployment benefits for a year, would cost in excess of $10 billion dollars a month. The budget deficits for fiscal 2011 amount to about $1.5 trillion and is expected to be about the same for fiscal 2012.

How is it proposed to finance the payroll tax cut in the bills pending before the Congress? By a tax on new mortgages of roughly $850 for a home valued at $200,000. The burden of the tax will be shifted to sellers by a process economists call backward shifting. (See the chapter on the property tax in our book, Trading Away Our Future, 2008.) Apparently, Pres. Obama wants to make the payroll tax cut permanent and finance social security out of the general fund rather than payroll taxes. The payroll tax cut is unlikely to create any jobs at all. 

For all practical purposes, the programs to substitute wind and solar energy for fossil fuel produced encergy, and to substitute biofuels for fossil fuels, etc., rather than creating employment, the wasteful spending on alternative energy enterprises have cost millions of productive manufacturing jobs, many of which, if not most of which, have been outsourced abroad. Not one of the alternative energy plants would have been built without federal, state, and local government subsidies. They are being built a half century or more before their time. When the cost of fossil fuel rises as it must as reserves become depleted and costs of extraction rise, private enterprise would undertake them without the need for government subsidies. One thing we know for sure, there is more carbon in the atmosphere than ever before and we’ve just experienced a decade of global cooling.

 The theory that global warming is man-made has come under attack by many scientists some of whom have developed an alternative theory that climate changes are caused by magnetic disturbances in the sun and their effect on cosmic rays. An experiment has just been completed at CERN, the world’s most advanced nuclear research center, which appears to confirm the role of cosmic rays in climate changes. Historical evidence likewise suggests that climate changes are not man-made but are the result of natural phenomena. The scandals at the universities in East Anglia, Penn State, and elsewhere which showed that the scientist proponents of Anthropogenic (man-made) Global Warming (AGW) stifled publication of research which challenged their global warming theory.  The involvement of politicians like Al Gore suggests that its leaders have ulterior motives. The fact that the theory was advanced by a suspect organization like the UN’s IPCC, is more suggestive of Stalinist-like science than unbiased research. Its leaders around the world may well be motivated by a desire to displace capitalist enterprises by government-financed private enterprises reminiscent of the policies pre World War II in France and Italy. The trouble with an increased government role is that it has already reduced the living standards of American and European workers. 

In our view, it was a mistake to pass the 2001 payroll tax cut. It is a mistake to extend it. The money goes to those who have jobs; it does little or nothing to create jobs. The money could have been better used to induce corporations to return their off-shore operations to the U.S. by tax reforms. For exmple, we recommend the elimination of the Corporate Income Tax and its integration with the personal income tax by treating corporations as partnerships.

Comment by Ptolemy, 12/23/2011:

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If the payroll tax cut is not extended, I suggest you make the tax cut for yourself by cutting your needless and wasteful spending by the amount of the tax cut.  The cut is 3.1% of your wages, up to $110,100.  The tax cut could be $1,000, $1,500 all the way to $3,300.  Here’s how to do it:

1.             Cut your cable subscription to “basic”.  We did that a few years ago and have saved $900 per year.

2.            Cut your dining out and bar room tabs by going out less often and eating [and drinking, if needs be] at home.  You will be shocked…shocked by how much you save.  You could save the entire tax cut on this item alone.

3.             Stop buying all the junk you buy at malls.  Consumer goods sold in this country have fallen terribly in quality and are for the most part cheap plastic junk made by child slave labor in third world countries.

Who do you think owns the businesses that sell this junk to you?  It is the 1% we keep hearing about.  Rich people don’t buy things…they sell things…to people such as you.  Your continuing to buy this junk is what keeps you in the 99%.  You keep yourself poor.

Put your savings into an IRA and resolve to keep doing this, year in, year out.  How do you like being broke all the time?  Being broke is not only embarrassing and inconvenient; it can be fatal.

I’ve been an attorney dealing with trust and estate clients for over 30 years.  I’ve seen the habits of wealthy people.  I’ve seen how they’ve got and remain wealthy and I share some observations with you.

Remember:       A.           Rich people don’t buy things, they sell things.

B.            There is no future whatever in spending money but there is a splendid one in saving and investing it.

Good Luck.

Comment by Wingnut, 12/23/2011:

Oh, its the Richmans again! How's it goin'?  Happy holidays!  I haven't heard form you guys in a while. I thought maybe I got you guys repaired last time that I stomped on your theories. Did it wear off already? Ok, we'll pour on another dose of "fix-a-cap" and see if this holds.

In my opinion, its the use of economies (money, ownership, price tags) that causes all the problems. Not one other living creature on the entire planet... uses economies. Why do capitalists? Are economies really needed? Are systems that promote competing... wanted/needed?

Think about competitive systems as racing, for a moment, if you will. There's the old stale adage... "It takes money to make money". Now apply it to racing/competing systems such as capitalism/car racing. It takes a big motor... to win races. It takes winning races... to afford big motors. In other words, in capitalism and car racing, the folks who are good at racing... will always win at racing. The folks who are not good at racing, will rarely win. Now what if... the race was to see who could be the most cooperative (opposite of competitive)? First off, cooperators HATE racing... and its against everything they stand for. I should know... I'm a proud cooperator... and I abhor racing. A big-dog cooperator is altruist. They/we always look out for the others' needs/wants FIRST, and always place themselves last. Cooperators want to make sure that everyone crosses the finish line at the same time... and often, before THEY do. That's fairness/love. Although cooperators never compete, IF they did, it would be a competition to see which could put forth more effort to help others cross the finish line ahead of them. In other words, cooperators might compete to see who could be the most cooperative. Love-competing. Altruism (and Christianity/other love-based religions).

So, when the USA and many other parts of the world... have decided that a competing/racing system is the proper way, then guess what. The folks who are best at racing/competing, will consistently be way out front. And since the folks with all these monetary and property winnings... are stern competers... they are unlikely to give away "their" (ownership) earnings to late finishers and to folks who hate/refuse racing... because that's not the way of a stern competer.

In pyramid systems such as capitalism and even in playground pyramids (both always collapse and hurt those on the bottom)... the strife is to get a leg UP, not a leg down. Competer folks tend not to seek the nobility and pride of being a strong bottom-layer foundation member of a pyramid. They instead tend to seek the "heads in the clouds" monetary powers and luxuries of climbing high. And when many are racing to climb high, the tops of pyramids get top heavy, and put enormous excess strain on the bottom layer foundation people. The weight of the world's knees is on/in their backs, and they get crushed, and the racing pyramid collapses, just like capitalism's pyramid is doing. Wise mothers everywhere know that the kids should NEVER be allowed to build pyramids of people... its exploitive upon the strong foundation layers. Yet childhood pyramids are seen all the time, including in cheerleading... and rarely does a parent stand up and say STOP IT RIGHT NOW like we all know should be done.

I've been anti-capitalism, and moreover, anti-economy-usage for over 20 years, and I have been saying STOP PYRAMIDING the whole time. The Columbian Freemason pyramid scheme symbol is right there on the back of the USA dollar, and the USA gov is located in a district of COLUMBIA and not even part of the USA proper. Its the USE of economies, that causes racing systems, and its the use of racing systems, that causes sure-to-collapse pyramiding. Its racing systems that are to blame, and economies (and luxuries/empowerments gotten there-from) are the devices which cause racing. The occupiers are grumbling about unfairness... but they don't know the reasons unfairness happens. I do. I have a better idea, and I know how to implement it. When the USA and world are ready, we can begin the short or long trip to make it happen.

You know I'm right about racing systems.  Own up.

Best regards!

Larry "Wingnut" Wendlandt
MaStars - Mothers Against Stuff That Ain't Right
(anti-capitalism-ists) (anti-economy usage)
Bessemer MI USA

Comment by Larry Walker, Jr., 12/27/2011:

I agree! When you wrote "2001 payroll tax cut", I assume you meant "2011".

Response to this comment by Raymond Richman, 12/31/2011:
Right. Thanks. I made the correction. Raymond Richman

Comment by M, 12/30/2011:

President Obama may reap what he has sown and lose his bid for re-election, but that possiblity will do nothing to advance your agenda.

Where is today's Adlai Stevenson when we need him most?

"We can chart our future clearly and wisely only when we know the path which has led to the present."  Speech, Richmond, Virginia (20 September 1952)