The world of smoke and mirrors

By Jim Terry

In an attempt to salvage the economy which has been bashed by the Saudi Arabia oil war with Russia, compounded by the China generated Coronavirus pandemic, Washington politicians are proposing a variety of stimulus projects.

President Trump, whether he first proposed it or not, has latched onto a payroll tax cut. He has said he supports the payroll tax elimination through the end of this year. Congress, however, has not shown much interest, yet.

The payroll tax is the main source of revenue for social security. The past fifty years, Washington politicians have been telling us that social security is broke, or will soon be broke if it is not fixed. Yet, since its inception, Congress has continued to suck the social security "lockbox" drier than a teenager's soda fountain malt glass.

In December 2010, Congress passed H.R. 4853, which, among other things, cut the payroll tax by two percent. The cost to social security was $111 billion. In December 2011, President Obama proposed and Congress approved H.R. 3765 which extended the payroll tax cut to the end of February 2012. It cost social security another $20.4 billion.

When President Obama first proposed a "payroll tax holiday" to immediately inject billions of dollars into the economy, he and Congress didn't tell America how the lost revenue would be recaptured.

Hidden in the legislation to extend the payroll tax cut was a new fee with estimated revenues of $36 billion over the two month extension. It was a new fee on mortgage loans. While social security would lose nearly $132 billion because of the "payroll tax holiday," none of this new fee would go back into the social security fund, but into the government's general fund. This new mortgage fee would be applied to loans backed by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation- otherwise known as Fannie Mae and Freddie Macover the next ten years. About ninety percent of home mortgages are insured by those two government agencies.

CBS' Sharyl Attkison highlighted this hidden fee in a February 2012 piece. She cited a Virginia home buyer who would receive a couple of hundred dollars as a result of the two month payroll tax reduction, but over the term of her mortgage, this new fee would tack on an additional $9,500.

Each year, the social security trustees provide a report on the status of social security. The April 2019 report states, "Under the intermediate assumptions, the projected hypothetical combined OASI and DI Trust Fund asset reserves become depleted and unable to pay scheduled benefits in full on a timely basis in 2035." The report then explains the consequences, "At the time of depletion of these combined reserves, continuing income to the combined trust funds would be sufficient to pay 80 percent of scheduled benefits." The report further points out, " Lawmakers have a broad continuum of policy options that would close or reduce Social Security's long-term financing shortfall."

Over the years, Congress-Washington politicians- have broken several promises made to Americans when the Social Security Act was passed in 1935. During the congressional debates on that legislation, Senator Daniel Hastings (R-Del) commented regarding the large sums of money the government would accumulate under the proposal and how tempting it might be to not leave the fund intact.

Hastings reminded the Senate that the civil-service retirement fund of the federal government should have $1 billion in it, yet the fund was practically empty. He said, "There is nothing in the civil-service retirement fund except an I.O.U." He then asked how Congress would act if the social security fund reached $47 Trillion, paid in by the participants and employers. Would Congress recognize those funds belonged to those who paid into the fund-twenty-five to thirty million people? Or, would Congress, under duress from fifty million other constituents begging for programs, give in to those who hadn't paid into that fund and use that money elsewhere?

Hastings concluded his debate with this prediction:

Mr. President, I submit that in a democratic form of government where a fund is created for the benefit of twenty-five or thirty million people, Congress itself would be as helpless as a child, because the man who should not respond to the demand of a group of voters such as that would simply give way to another man who would respond. That has been common experience in this country and could be demonstrated by precedent after precedent.

President Trump and Congress should stay away from the payroll tax. Experience has shown that Washington politicians are the masters of illusion. They practice the art of government too often with smoke and mirrors.

© Jim Terry