What Does the Payroll Tax Have To Do With the Pipeline?

Nothing, of course. But the Democrats’ demagoguing of the extension of the payroll tax holiday has naturally prompted a response from the GOP, which, in turn, has already brought a veto threat by President Obama:

President Obama warned Congress on Wednesday not to tie approval of a payroll tax cut to other sensitive measures such as the Keystone Pipeline project, which his administration delayed last month. …

“Any effort to try to tie Keystone to the payroll tax cut, I will reject,” Obama said. “Everybody should be on notice.” … The tax cut “shouldn’t be held hostage to any other issues they may be concerned about,” Obama said. “My warning is not just related to Keystone. Efforts to tie a bunch of other issues to something they should do anyway will be rejected — by me.”

Of course, Obama’s proposal ties the payroll tax cut extension to a tax increase on high-income taxpayers, which would cover less than one-tenth of the cost of the tax holiday–a purely political connection. John Boehner fired back, effectively, I think:

“We are working on a bill to stop a tax hike, protect Social Security, reform unemployment insurance and create jobs,” [Boehner spokesman Brendan] Buck said. “If President Obama threatens to veto it over a provision that creates American jobs, that’s a fight we’re ready to have.”

The payroll tax extension is a political ploy, and little more. But how Republicans should respond to it is a serious question. I talked this afternoon with a senior Republican Senator who is appalled by the Democrats’ weakening of Social Security. In his view, FICA taxes are not just taxes, but contributions to a federally-sponsored pension program. Reducing those FICA contributions renders Social Security insolvent and unsustainable, not at some future date, but right now. It is not hard to see where this leads: it will soon become obvious to everyone that the Social Security numbers don’t add up, and are getting worse. The government’s response will be to means test Social Security (proposals to do so are already being floated). Once Social Security is means tested, it loses its status as a universal retirement system. Instead, it is just one more welfare program. That realization will cause Social Security to lose the broad public support that it now enjoys, and the program will, in some fashion, collapse. Those who don’t intend to be poor when they retire will refuse to support it, opting to save their money instead.

So the Democrats’ opportunistic drive to cut FICA taxes is most likely a death knell for Social Security, as many liberal commentators have noted. How Republicans should react depends mostly on how one views the Social Security program. If you think Social Security is good and want to save it, like the Senator I spoke with today, you probably should oppose the Democrats’ proposal. On the other hand, if you think Social Security is an obsolete program, at best, that began as a fraud and went downhill from there–my own view–it makes sense to join with the Democrats in undermining the program’s financing.

The debate over FICA taxes is driven 100% by politics, but its consequences are likely to be far-reaching.

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