Jim Terry
December 29, 2011
How government fixes things
By Jim Terry

You will often hear politicians running for U.S. Congress or president say, "The system is broken and we need to fix it." We heard that from candidate Obama and we hear it from President Obama.

People who depend on government to make everything bright and rosy, who believe government should fix the wrongs and right the injustices in life are depending on the wrong entity. Why? Because government is run by politicians.

An example of how government fixes things is the current battle over H.R.3630- Temporary Payroll Tax Cut Continuation Act of 2011.

In April 2008, candidate Barack Obama made the following statement, "We're going to have to capture some revenue in order to stabilize the Social Security system. You can't get something for nothing. And if we care about Social Security, which I do, and if we are firm in our commitment to make sure that it's going to be there for the next generation, and not just for our generation, then we have an obligation to figure out how to stabilize the system."

His solution to stabilize the Social Security system was to push a bill through congress to reduce the payroll tax, Social Security's primary source of funding.

In December 2010, the Democrat controlled congress passed a bill to cut the payroll tax from 6.2 per cent to 4.2 per cent. According to the Congressional Budget Office roughly 97% of Social Security's revenue comes from the payroll tax. Unfortunately, Republicans joined in this hoax.

At the heart of the current Washington battle is the extension of the payroll tax cut, which, if extended for another year, will reduce revenues used to fund Social Security by at least $200 billion.

The Social Security Administration's Annual Statistical Supplement for 2010 reported that at the end of 2009 52.5 million people were receiving Social Security benefits. The Statistical Supplement also said of Social Security:
    It is the major source of income (providing at least 50 percent of total income) for 52 percent of married couples and 73 percent of non married persons aged 65or older. It contributes 90 percent or more of income for 21 percent of married couples and 43 percent of non married persons aged 65 or older.
Remember what candidate Obama said? "We're going to have to capture some revenue in order to stabilize the Social Security system." But his solution was to cut revenues to Social Security. That is how government, rather politicians, fix problems.

To make matters worse, the political fix, that is, the political way to pay for the payroll tax cut, which takes revenue from Social Security, is to increase the fee lenders pay to have mortgages insured by Fannie Mae and Freddie Mac, which will be a new tax on future home buyers because the fee will be passed along to them by the mortgage companies. This provision was added to the original House legislation by the Senate.

Bob Nielsen, chairman of the National Association of Home Builders responded to the Senate amendment in a press release, "Congress is essentially proposing to raise taxes on millions of potential home buyers in order to pay for a payroll tax cut and other non housing legislative initiatives. With the housing market struggling to regain its footing, such a short-sighted move would be extremely counterproductive and threaten the fragile economic recovery."

Neilson went on to say, "Just as we are beginning to see modest signs of improvement in scattered housing markets across the nation where employment is gaining and consumer confidence is rising, Congress is tampering with g-fees (loan guarantee fees) and needlessly raising the cost of buying a home. This will jeopardize the tenuous rebound and is the last thing this economy needs."

An MSN.com report on this Senate amendment to the House passed financial package said:
    The fee increase was initially proposed by President Barack Obama to cover losses to the federal government in its bailout of Fannie and Freddie and to make the government-supported entities more competitive with private industry. But the current proposals would use the revenue collected from the fee's increase to offset other federal costs, such as the extension of the Social Security payroll tax cut.
Governor Rick Perry, among others, has characterized Social Security as a Ponzi Scheme.

So, how does this government fix stack up to the methods of finance not invented by, but maximized by Charles Ponzi?

The government cuts the payroll tax of 160 million workers, saving them on average $1,000 per year. The reduced payroll tax costs Social Security for 50 million Americans around $200 billion in revenue. The government then places a tax on the purchase of a home. This tax was originally intended to fund Freddie Mac and Fanny Mae, but will now be used to make up the loss of revenue to Social Security because of the reduced payroll tax. Meanwhile, any of those 160 million working Americans who may want to buy a home will pay the increased fee to their mortgage company which will consume their payroll tax savings and much more. Or, seeing the higher costs of buying a home, they may pass and the housing industry will continue to flounder.

The only place, outside Washington, this scenario could be conjured up is in Hollywood. And recalling some of the recent entertainment which has come from there, I'm not sure our current crop of writers has enough imagination or talent to come up with this mindless plot. Based on the above, not only can Social Security be characterized as a Ponzi Scheme, but almost the entire financial structure of the federal government resembles a Ponzi scheme or its incestuous cousin, check kiting.

Another example of how government fixes things is in the matter of health care. Again, candidate Obama stated in 2008, "The problem is not that folks are trying to avoid getting health care; the problem is they can't afford it."

If you prepare your own annual income tax filing, you know how difficult IRS rules and forms can be. Of course Congress has tried to help us with that over the past 25 years by deducting from tax laws our deductions.

One of the few itemized deductions remaining is the deduction for medical expenses. In 1942, a time of national urgency, congress passed a law to allow the deduction of medical expenses. However, that law imposed a floor of 5 per cent, which meant taxpayers could deduct only the medical expenses which exceeded 5 per cent of the taxpayer's adjusted gross income. In 1954, that floor was lowered to 3 per cent, then raised back to 5 per cent in 1982. The Tax Reform Act of 1986 increased the medical deduction floor to 7.5 per cent.

Then, in December 2010, shortly before he lost his Democratic majority in the House of Representatives, President Obama, who, as candidate Obama, was concerned that Americans could not afford health insurance, pushed through his Democratic congress a law raising the medical expense deduction floor to 10 per cent. Seniors got a reprieve from that increase-the floor for seniors who utilize itemized deductions and who include medical expenses will remain at 7.5 per cent, until January 2017, when they also become beneficiaries of Washington greed and the floor on their medical expense deductions rises to 10 per cent.

I suppose it never occurred to Washington politicians to ease the burden of medical costs by allowing taxpayers to deduct the full amount of those costs on income tax returns.

The folly in these examples is expected of Democrats, especially those of liberal persuasion.

Voltaire said, "In general, the art of government consists of taking as much money as possible from one party of the citizens to give to the other." That is the goal of liberals. Republicans, sad to say, are marching down that same path too often these days.

When politicians begin to fix things that are broken, we must remember they are the ones who broke them in the first place.

© Jim Terry

 

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Jim Terry

Jim Terry has worked in Republican grassroots politics for 40 years. Terry was an administrative assistant to a Republican elected official in Dallas for twenty years. In 1996, he ran for and was elected to Justice Court 2 in Dallas County where he served eight years. Contact Jim at tr4guy@flash.net

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