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Michael Hiltzik: How to overcomplicate a tax break

December 14, 2010 |  7:32 pm

... tie it unnecessarily to the payroll tax, that's how.

The White House seems to be suggesting that the tax break for the middle and working class in its negotiated package is distributed through the payroll tax because Republicans insisted on that structure. As my Wednesday column observes, that's the part of the deal that should have made President Obama wrinkle his nose, because that's the part of the deal that smells.

There's no rationale for cutting the payroll tax, as opposed to adjusting income tax withholding schedules, except to undermine Social Security, which the tax pays for. Since the reduction is going to be paid for by borrowing, it will eventually have to be covered by the income tax anyway. Why not cut out the middleman?

No one would be so concerned about this bizarre mechanism if not for the conservatives' 75-year attack on Social Security, which makes its supporters paranoid. Let's go through the facts, drawn not from Fox News or the tea party but from the Social Security trustees' official report, one more time:

Social Security is not going bankrupt. The $2.5-trillion trust fund is not a myth, but is as real as the savings bonds in your kids' college fund or, indeed, the money in your checking account. Medicare is in trouble, largely due to rising healthcare costs; but when you hear a politician claim therefore that "Medicare and Social Security are in trouble," you're being conned.

The column begins below.

There are reasons to like the tax-cut deal President Obama reached with Republican congressional leaders this month, and reasons to dislike it.

Here's the part to hate: The "temporary" one-year reduction in the Social Security payroll tax.

We can debate whether the wealthy need or deserve an extension of their income tax breaks President Bush gave them starting in 2001. We can debate whether people who inherit fortunes need a cut in the estate tax. Or whether the overall package will have as much stimulative effect as a tax cut aimed squarely at the middle class and working class.

But even assuming you want to deliver a break to the workers for whom the payroll tax is the biggest item in their federal tax, what's not debatable is that this is the wrong way to do it.

Read the whole column.

-- Michael Hiltzik