A payroll tax break? To stimulate the economy or to faciliatate attacks on Social Security and Medicare?

Robert Reich has been one of the best economists in analyzing and commenting regularly on the current economic crisis.

But in his blog post Why the President Must Come Up With Demand-Side Solutions, And Not Go Over to the Supply Side 06/09/2011, he lets a stereotypical economist's habit get the best of him in this proposal:

How to get jobs back, then? By reigniting demand. Put more money in consumers’ pockets and help them renegotiate their mortgage loans.

For example: Enlarge the payroll tax break for workers — not just for employers. Exempt the first $20,000 of income from payroll taxes for a year. Create a WPA for the long-term unemployed. Allow distressed homeowners to declare bankruptcy on their primary residence, thereby giving them more clout with lenders to reorganize their mortgage loans. Lend federal money to (rather than bail out) states and cities that are now firing platoons of teachers, fire fighters, and other workers because state and local coffers are empty. [my emphasis]

The federal payroll tax finances Social Security and Medicare. Temporary payroll tax relief for 2011 was part of Obama's deal tax deal with the Republicans at the end of last year.

It's not surprising that economists would be tempted to see this as an effective policy device to stimulate the economy. A large part of the additional amounts employees would get from this reduction would get directly into consumption, thus stimulating the economy. Any amounts thereby taken from Medicare or Social Security could be replaced later by income from the general fund.

Outside of economists' charts, though, that's not how the American political system works. As Reich and everyone else paying attention knows, the Republicans are on their own little jihad against Medicare and Social Security. Though the Obama Administration has recently resorted to using actual Democratic rhetoric, so they are so far holding off on buying in to a Grand Bargain to gut the Great Society (Medicare) and the New Deal (Social Security).

But if the Social Security and Medicare are so broke that they're about to take down the economy, which is what the Republican scaremongers are telling us, what possible political sense does it make to cut the payroll tax and make their projected shortfalls worse?

That's what Gregg Levine is asking in Hope Floats FDL 06/10/2011:

The Obama administration has assured us that the Social Security shortfall will be made up from the general revenue, but if the White House does not think it has the political capital to push through a more straightforward (and almost certainly more effective) money-for-jobs stimulus plan, why are we to grant that they can engineer a repayment of the Social Security fund? And even if that transfer were politically possible, what $400 billion cut in the federal budget will have to be made to appease the deficit peacocks?

All of this—or any of this—puts additional pressure on Social Security, or, more accurately, lends ammunition to those already taking pot shots at the long-term viability of the program. If there are already “serious” people trying to shock-doctrine in changes to the retirement plan, how much more shocking could they make things seem after taking a two-, three-, or four-hundred billion-dollar bite out of its reserves?

None of these cold calculations likely come as a big surprise to the White House. In fact, this is all possibly part of the political calculation—that one of the reasons Hill Republicans might go along with an Obama-proffered plan of any sort is the resulting dent it puts in the Social Security trust fund.

And while in a better world, it would arguably be better to fund Social Security and Medicare from the general fund, we actually live in a world where the anti-Social-Security Pete Peterson Foundation is taken serious by adults who know better, including way too many senior Democrats. Not only will the Republicans refuse to authorize what they will call a general fund "bailout" of either system. They will also use that to further one of their favorite themes, that those systems are not insurance systems (which they are) but welfare programs, which in RepublicanSpeak means "stuff for undeserving black people."

Digby weighs in with similar thoughts in Going around in circles Hullabaloo 06/10/2011:

Oh sure, they say that they will "replace" the dedicated payroll tax money from general funds. The same general fund everyone is bleating about ruthlessly cutting to the bone. Trust 'em?

That they're contemplating cutting the employer portion is also mystifying. Companies are already sitting on cash and aren't hiring. Giving them more cash is likely to do nothing more than make those cash rserves [sic] larger. They aren't hiring because they don't need the help. And that's because customers aren't buying.

Although the policy goals of all this are quite clear, I'm no longer able to discern a coherent political strategy. They probably want to be able to make the argument again that they are the greatest spending cutters in history, thus giving the confidence fairy a goose and convincing all those Independents that they are ... Republicans? I don't know. It appears to still be "give the bankers what they want and cross your fingers." I guess they don't buy the aphorism that insanity is doing the same thing over and over and expecting a different result. [emphasis in original]

This is not going in a good direction.

Tags: grand bargain, medicare, obama administration, robert reich, social security