Bruce Bartlett is an economics expert, a former Domestic Policy Adviser in Reagan Administration, and a former Treasury Official during the George H.W. Bush Administration but he was also an outspoken critic of George W. Bush. He worked for Jack Kemp and was an early proponent of supply-side economics but after becoming disillusioned with Republican leaders he wrote 'Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy' and 'The New American Economy: The Failure of Reaganomics and a New Way Forward.' He is, in short, a rare example of a Republican economics expert and a straight-shooter that is not blinded by ideology. So when Bruce Bartlett says that a payroll tax holiday will undermine or destroy Social Security we should listen.
Today, I just want to ask one question:What are the odds that Republicans will ever allow this one-year tax holiday to expire? ...if allowing the Bush tax cuts to expire is the biggest tax increase in history, one that Republicans claim would decimate a still-fragile economy, then surely expiration of a payroll tax holiday would also constitute a massive tax increase on the working people of America. And what are the odds that the economy won't still be fragile a year from now? Zero, I would say.
... But a payroll tax holiday is Pandora's Box and best left unopened. Republicans would prefer to destroy Social Security's finances or permanently fund it with general revenues than allow a once-suspended payroll tax to be reimposed. Arch Social Security hater Peter Ferrara once told me that funding it with general revenues was part of his plan to destroy it by converting Social Security into a welfare program, rather than an earned benefit. He was right.
He explains all the economic reasons why a payroll tax holiday is a bad idea in this Forbes article, but the political reason to avoid it is more important. Many powerful people have been trying to destroy Social Security and their best chance is to convince people that it is in crisis and unsustainable. A short payroll tax holiday undermines the funding and an extended payroll tax holiday will destroy the program. When we have to come back hat in hand asking for general fund money to replace the lost revenue, Republicans will claim the program is too expensive and radically alter it.
This tax cut agreement is bad on so many levels. It adds more to the national debt than the stimulus with less increase in economic activity. You can bet that as soon as it passes Republicans will attack Democrats for reckless spending again (and they will be right this time). It makes Democrats look pathetic and weak (and they are). But the most serious problem in this agreement is that it will sow the seeds for the destruction of Social Security.