Last month, our lawmakers decided against reversing a scheduled increase in the payroll tax, thereby increasing the amount of revenue paid to the federal government for nearly 77 percent of American households. After bitter battles in both the House and the Senate, lawmakers agreed to increase payroll taxes on the majority of Americans rather than extending the tax cuts that were initially proposed by the Bush administration two years ago. As a result, the payroll tax rate has been increased two percentage points – from 4.2 percent to 6.2 percent – on all earned incomes up to $113,700.
The Tax Policy Center recently reported that less than 5 percent of families earning incomes between $200,000 and $500,000 will actually pay more taxes. As a result, the working class is deemed responsible for the government’s excessive spending. For most lower and middle class Americans, the aforementioned tax increase most likely equals, if not surpasses, the amount of income tax reductions approved by Congress earlier this year. For example, a household earning approximately the national average income of $50,000 will avoid paying about $1,000 more in income taxes, but will pay the same amount, if not more, in payroll taxes.
Thus, many Americans are angered by this “tax hike” and continue to blame members of both parties for allowing it to transpire. This, however, seems very unusual, especially considering that the payroll tax rate was stabilized at 6.2 percent since 1990. In fact, this tax “hike” was not necessary a “hike” at all, but a return to the rate that was existent prior to the tax cuts proposed by the Bush administration. Moreover, the payroll tax reduction not only cost the federal government $240 billion in tax revenue, but it increased the likelihood of Social Security experiencing bankruptcy in the near future as well. Since Congress did not cut spending by $240 billion, the tax cuts further amplified our country’s sizable deficit.
The problem here is not only that tax rates were increased during a time of fiscal constraint, but that the American people are continuing to pick up the tab for a government that is failing to cut unnecessary spending. Ever since it was reported that our GDP decreased by 0.1 percent during the last quarter of 2012, many commentators have been arguing that the “lower” government spending of the Obama administration is the source of our economic depression. In actuality, government spending has increased by over 0.8 percent in the past year. The claim that spending has decreased comes from a federal report that delineates “government spending” so ambiguously that it excludes nearly half of all federal expenditures. As if that was not enough, the recent payroll tax increase is expected to hinder our GDP by almost 0.6 percent. Though many argue that increased government revenue will ensure the extension of Social Security, Medicare, and Medicaid, such an increase in taxes will serve as a temporary benefit unless our administration fundamentally reforms many of our government programs.
How long must the American people suffer before the government realizes that it must completely overhaul many of these entitlement programs that are driving our deficit into the ground?
Medicare will make up $1 trillion of the federal budget by the end of the decade, Medicaid currently accounts for nearly $400 billion of the budget and is expanding quicker than Medicare, Social Security amounts to $770 billion of the budget, and Food Stamp expenditures are continuing to skyrocket. The first two programs result in the majority of fraudulent transactions that the federal government makes, Social Security continues to suffer from a system that has failed to reduce improper payments. Since fundamentally reforming these programs in order to reduce spending is undoubtedly laborious, the administration must start by eliminating, or at least reducing, the inefficiency that results in fraud and improper transactions.
President Obama and Democrat representatives are advocating for a “balanced approach” which includes equally increasing taxes and reducing spending. This, of course, is in addition to the expiration of the Bush-era tax cuts. On the other hand, Congressman Paul Ryan and other House Republicans plan to balance the budget in ten years without increasing taxes. As many economists have indicated, eliminating government shortfalls through spending reductions tends to benefit the economy more so than by eliminating them through tax increases. Poland, Switzerland, Canada, Sweden and Germany have emphasized reducing government spending rather than increasing taxes. At present, all of these countries are more economically stable than the United States.
House Minority Leader Nancy Pelosi recently stated that it is “almost a false argument” to say that our government has a “spending problem”; however, if the government does not have a spending problem, then it most surely has a problem making sure that entitlement funds are properly allocated. Sure, the payroll tax has returned to what it was prior to the Obama administration, but who’s to say that other taxes will not increase in light of the ongoing expansion of our federal programs?
No one with a right mind can guarantee that.