Payroll tax cuts, state and local government bailouts, propping up universities and colleges — it’s best to hold on to your purses, folks. With serious talk about another round of coronavirus relief funding getting underway, we may witness a frenzy where politicians work feverishly on the fiscal commons. It appears they’ve noticed that in trying times, the public cares even less than usual about how things will ultimately be paid for.
There are no fences that limit the canny elected official from stepping out on the commons and bundling and shipping another load of money to the politically valuable. But before shipping out another trillion or so, it might be reasonable to remember that a large number of people and organizations are already covered by the first package of loans and expanded benefits, and therefore it’s wise to give the first round of funding a bit more time to blossom.
We should never view political decision-making as an applied use of the scientific method. Why ask for data and logical justification? In times like these, the public’s distress seems justification enough for diverting funds from existing programs to more political valuable ones or, barring that, just printing money. Even the perennially underfunded Social Security storage house is in the political crosshairs. President Trump, no less, is calling for a Social Security tax holiday.
So better watch your money, taxpayer, because we know who will ultimately pay the bill. It’s you, and there really is no other alternative.
No need to kid ourselves: There is a huge amount of hurt out there, taking many forms, and more is on the way. Some politicians want federally guaranteed pay for all who were laid off because of coronavirus shutdowns. But that could be 30% of the workforce.
Others are calling for federal payments to city, county, and state governments that find themselves caught in a coronavirus bind. Some states have rainy day funds that will help bridge operations to better times, but there are also balanced budget constraints that require state and local governments to cut spending when revenues fall. It’s also clear that it wasn’t just the coronavirus that crippled state budgets. Due to mismanagement, some state governments were in a bind long before the coronavirus entered the vocabulary. If there is going to be federal relief, some funding compartmentalization will be needed. Otherwise, we will witness yet more examples of sending “good money after bad.” But money is hard to corral. It’s fungible.
Other political leaders are looking to assist universities and colleges that face disgruntled students and parents who are sick of being pushed home after having paid a bundle for campus-based, classroom-oriented learning. If the airlines, petroleum producers, and farmers deserve a bailout, why not higher education? After all, the future of Western civilization hangs in the balance. But we mustn’t overlook the fact that the higher education industry, like some state and local governments, was also facing severe challenges before the pandemic hit. Those who design relief packages must find ways to avoid bailing out schools that were sadly and naturally well on their way to bankruptcy.
And now, not necessarily to top it off (because there will be more proposals to come) but at least to add a dose of whipped cream, Trump is calling for an extended taxpayer holiday that would temporarily put the brakes on payroll taxes, or what some call Social Security withholding. This is currently 6.2% of pay deducted from the individual’s paycheck and a matching 6.2% paid by the employer.
Taken one at a time, each of these proposals comes with appealing justification. After all, those who lost their jobs due to government-imposed shutdowns might reasonably expect the government that took their livelihood to make them whole again with a social insurance program. And then, there are ballooning public sector costs generated by first responders, local public health officials, and countless other city, county, and state employees. Surely, the federal government should at least partly rescue these hard-pressed public units. Colleges and universities? Our future depends on a healthy higher learning sector. And we are just talking about assistance for a year or less.
Still, it’s fair to say that these newest proposals now extend beyond the initial efforts to create an economic bridge back to normalcy. In a real sense, we are back to good old-fashioned pork barrel politics. We’ve heard it before, and we will hear it again. But the Social Security tax holiday proposal rests on a slightly stronger foundation.
Temporarily eliminating payroll taxes puts money in the pockets of people who go to work, not those who are sidelined. Eliminating the employer part of the tax makes it a bit easier for businesses to hire more people. With the economy now sputtering in an attempt to get rolling again, we will sooner or later need more people, especially those who can safely work in areas that are reopening, to move off generous unemployment compensation programs and get back on the job. Yes, incentives matter, and this proposal helps in that regard.
But wait a minute. What about the payment of Social Security benefits? If we cut off the flow of cash going into the fund, won’t it be a challenge to keep paying Social Security benefits to the retired population? You bet your boots it will be. As we all should know, there is no Social Security fund under lock waiting to be tapped by the next beneficiary. Indeed, newly recognized beneficiaries are funded almost totally by workers who are currently paying Social Security taxes. Elimination of the funds flowing in will require opening up a flow of funds from somewhere else.
Who will provide the additional funds to repair Social Security? And who will pay the large deficit generated by another tax holiday, or for expanded payments to local and state governments? And who will fund new federal programs for universities and colleges or all those good people who lost their jobs due to coronavirus?
We all know the answer: William Graham Sumner’s so-called “forgotten man” who goes to work every day, pays his bills and taxes, is seldom involved in politics, but always gets hit with the bills. Lots of people need a break right now — let’s remember that the forgotten man is one of them.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
