TAKING STOCK: Sweeping our fiscal problems under a very large rug

Dear Mr. Berko:

What is your opinion about reducing the payroll tax to stimulate the economy? Is this a stroke of brilliance on part of the administration to put more spendable money in the consumer's pocket? Will it prevent as much borrowing and increasing of the national debt? It certainly will increase consumer spending. Do you think the reduction from 6.2 percent to 4.2 percent is a good idea? Should I be concerned about the future direction this economy is headed?

WH, Destin, Fla.

Dear WH:

The answer to your last question is no, because there's little you can do about it - Congress is here to take care of you! However, the 6.2 percent payroll tax on employee wages is money the administration uses to fund your Social Security and a few other "we care for you" programs.

In 2010, an employee earning $50,000 paid 6.2 percent of that income, or $3,100, into FICA, and employers paid the same amount. The reduction of 2 percent (employee only) on that $50,000 gives workers an extra $1,000 to spend on "things and stuff," which should increase demand and create more jobs. It's an efficient way to put billions of new dollars into your pockets while goosing the economy into appearing that it's growing faster than it is.

So 170 million workers spending an extra $1,000 a year tosses $170 billion of new money into the economy. It also reduces funding of the mythical Social Security Trust Fund (SSTF), which is having serious money troubles and may soon pay out more than it takes in. But this new $170 billion is the pretext for Congress to eventually reduce those hugely generous payments to SS beneficiaries.

Tax receipts for the SSTF, which is a huge joke and never existed, were sharply reduced in the past few years by high unemployment plus a 32 percent reduction (from 6.2 percent to 4.2 percent) in the payroll tax. Now observers believe that lower payroll taxes will put SS in the red by 2017. This is also a snub of America's middle class, whose retirement benefits are being pillaged by a short-term political solution that's basically a Band Aid for a long-term economic problem.

So there may trouble in River City when millions of middle class beneficiaries get SS checks totaling a few thousand dollars a year less than the numbers promised a decade or so ago. And if this tax is not restored soon, the national debt will increase by hundreds of billions dollars each year in order to maintain monthly checks for 59 million Americans.

One solution that Congress is now discussing is to permanently reduce all benefits or eliminate benefits for businesspeople (not including professional athletes and entertainers) whose incomes eliminate the need for monthly government checks. Congress may consider raising the payroll tax to the 2010 level or perhaps a smidgen higher. But our noble unions may incite their membership by suggesting that this is an unfair tax increase and roil the hoi polloi again.

A third solution almost everyone believes would solve most of our country's problems is to eliminate all campaign contributions and lobbyists. Congressman Ron Paul (R-Texas) believes political contributions are the Petri Dish for corruption and are responsible for 85 percent of the nearly $400 billion of waste, fraud and graft that inflates our $3.6 trillion budget. Unfortunately, campaign dollars are a sacrament to almost every elected official in federal, state and municipal governments.

I doubt our fiscal and monetary problems will ever be solved; rather, they'll be swept under a rug, as they have been in the past. And then under a bigger, bigger and bigger rug until we run out of rug space.

Fortunately or unfortunately, we are a democracy, and a democracy cultivates mediocrity because the tastes of the majority, which form the tribunal of opinion, are made into today's laws. I know you're concerned about the future direction of our country, and all I say to you is this: "Things turn out best for those who make the best of the way things turn out."


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

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Published: Mon, Jan 9, 2012