April 10, 2017

Given the unmitigated disaster when Republicans tried to actually repeal the ACA and replace with something much, much worse, tax reform ought to be a real hit parade of nonsense, which is already beginning.

The AP reports that the administration is considering a number of "unorthodox proposals including a drastic cut to the payroll tax, aimed at appealing to Democrats."

No, no, no. Cutting the payroll tax will NOT appeal to Democrats at all. It is a backdoor effort to destroy Social Security in classic Republican fashion -- by strangling it of funds. This is exactly what they always try and do. They create a crisis, and then run to Fox News claiming Social Security is going bankrupt because they just bankrupted it.

This is classic Shock Doctrine behavior, and I can't decide if I'm angrier at them for floating it or the AP for reporting it the way they did.

This is exactly what Nancy Altman warned about in 2010, when the "payroll tax holiday" was implemented as an economic stimulus, and Democrats must take heed about it now.

Back then, Altman feared the 2 percent cut would become permanent. Fortunately, she was wrong about that. But she described why any cut to the payroll tax was a disaster.

[T]he federal government will have to continue to transfer $120 billion to the Social Security trust funds each and every year even as it has to transfer more and more interest payments as the trust funds continue to grow and as interest rates return to more normal levels. Unless Congress acts to restore Social Security to solvency, the Treasury bonds held in trust will have to be redeemed, again on top of that new $120 billion transfer from the general fund, starting fifteen years from now, assuming Congress even continues to make the $120 billion every year before that point. These dollars will be competing with dollars for defense, environmental protection, education, school lunches, Food Stamps, Medicare, Medicaid, SSI, Pell grants for low income college students, and every other good and service financed by the federal government.

Cutting the payroll tax is the absolute wrong direction to go. The cap needs to go the other way. This is 2017, not 2010. We are not in the throes of an economic crisis, but we will be in a terrible crisis if they manage to de-fund Social Security this way.

We already have a bit of a crisis, because employers are shirking their payroll tax payments and the IRS is apparently not enforcing that, according to a report issued by the Treasury Inspector General.


As of December 2015, 1.4 million employers owed approximately $45.6 billion in unpaid employment taxes, interest, and penalties. Assessing 100% trust fund penalties on all responsible persons is an effective civil enforcement tool that the IRS can use to discourage employers from continuing egregious employment tax noncompliance. Even so, we should expect more enforcement, and earlier identification of payroll tax problems from the IRS.

In 2015, the IRS assessed the 100% trust fund recovery penalty against approximately 27,000 responsible persons. That may seem a high number, but it was 38 percent fewer than just five years before. Meanwhile, the number of employers with employment tax noncompliance for 20 or more quarters of delinquent employment taxes is steadily growing. It has more than tripled in a 17-year period. Even the 100% trust fund recovery penalty fails to deter some violations.

The report says that 59 individual taxpayer accounts assessed the trust fund recovery penalty for 10 or more entities. That sounds recurrent if not downright flagrant. Yet the report reveals that only 5 of the 59 individuals (a mere 8.5 percent) had been investigated by the Criminal Investigation Division of the IRS for potential criminal prosecution. The report also notes that there were many taxpayer accounts with over $1 million in trust fund recovery penalty assessments from 2010 through 2015. Approximately 700 individuals were assessed penalties in excess of $1 million each during this period, yet there were fewer than 50 of those individuals who were the subject of criminal investigations.

Every single lawmaker -- Republican and Democrat -- needs to stand up and absolutely refuse to stand for a cut in payroll tax. Beef up enforcement, deal with the deadbeat employers who aren't paying their taxes, but the right direction is to expand that payroll tax, not cut it.

UPDATE: Read Michael Hiltzik's analysis in the LA Times. Best explanation I've seen yet. Then share it with anyone who thinks this is a good idea.

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