OTHER VOICES

The tax hike that nobody is talking about

Posted Oct. 07, 2012, at 10:05 a.m.

If you work, your taxes will be going up at the end of the year even if Congress slams on the brakes just before the national bus plunges over the much feared “fiscal cliff.”

That’s because neither party — and neither presidential candidate — has shown a bit of interest in talking about, let alone renewing, the 2 percent Social Security tax holiday.

Yet, ironically, everyone would be screaming bloody murder if a politician announced a 2 percent increase in income tax rates on middle-income Americans.

The Social Security tax hike is sliding under the radar for two reasons:

First, it was presented as a one-year tax holiday in 2010 to put more money in consumers’ pockets when the economy was in danger of slipping back into recession. It was intended for 2011, then extended through 2012.

Second, Americans overwhelmingly support the concept of Social Security, and restoring the 2 percent will give the popular illusion of returning support to the program.

We say illusion because the federal government doesn’t bank that money, it just borrows it and spends it. But let’s not get into that.

For a person earning $50,000 per year in taxable income, the Social Security tax hike will cost $19.23 cents per week, which adds up to about $1,000 over the course of the year, according to ConsumerReports.org.

Ouch.

So, why is nobody fighting to extend this tax break?

The White House has a clever answer: “We’ll evaluate the question of whether we need to extend it at the end of the year,” Press Secretary Jay Carney told reporters last month.

Read that to mean “this tax is going away.” If it were good news, he would want you to know about it before the election, not after.

Many Republicans, meanwhile, opposed passage of the tax when it was extended last year, but by that point they were opposing everything Obama wanted, even tax breaks.

Here’s our best guess why this tax break will be abandoned.

While some can’t admit it before the November election, there is a growing awareness that both budget cuts and tax increases will be required to ultimately balance our federal budget.

With the growing demands of an aging population, Americans are not willing to simply see the deep sort of entitlement cuts that would be necessary to balance the budget by cutting alone.

That leaves either growing the economy or increasing taxes.

The economy is growing, although slowly. But nobody is projecting the sort of economic boom that might alone eliminate budget gaps.

So there is a gradual understanding that it will take a combination of all three approaches — spending cuts, a growing economy and broad-based tax increases — to balance the federal budget.

And the Social Security tax hike is seen as the least painful way to impose a significant tax at the least risk of upsetting taxpayers or hurting economic growth.

The bigger challenge will be reaching agreement on extending most or all of the Bush tax cuts. Republicans will fight tooth and nail to keep them, and Democrats will insist on higher taxes on higher-income earners.

Then there’s the real elephant in the room, sequestration, which demands automatic cuts to social programs and defense and would likely throw the economy back into recession.

Congress will have a lot of very sobering realities to deal with after the November elections, and not much time in which to act.

Allowing the Social Security tax break to expire will seem like the smallest problem in the room.

Sun Journal, Lewiston (Oct. 7)

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