Some clarification for those who post about their paycheck going down.

[ErikJ]

15. 1980/8% to 1990/15.3%

Reagan did it gradually. In 1980 they were 8.1% to 15.3% by 1990. They were intended to last for 30 years for the baby boom generation.

http://bradfordtaxinstitute.com/Free_Resources/Self-Employment-Tax-Rate.aspx

How the Wealthy Took Tax Cuts and Why They Now Want to Clip Social Security.
Saturday, December 1st, 2012
Kevin Drum, a political columnist for Mother Jones, writes a brief explanation why Republicans are demanding Social Security be ‘on the table’ for spending cuts. Essentially, Drum explains, Social Security payroll taxes, which are paid primarily by labor and the middle class, went into surplus under Clinton and that allowed for lower income taxes on the wealthy. Going forward income taxes will need to be raised to continue making Social Security solvent because Social Security surpluses were drained by the Bush Tax cuts. So the wealthy now want to renege on replenishing the Social Security trust funds.

Charles Krauthammer is upset that Dick Durbin says Social Security is off the table in the fiscal cliff negotiations because it doesn’t add to the deficit:

This is absurd. In 2012, Social Security adds $165 billion to the deficit. Democrats pretend that Social Security is covered through 2033 by its trust fund. Except that the trust fund is a fiction, a mere “bookkeeping” device, as the Office of Management and Budget itself has written. The trust fund’s IOUs “do not consist of real economic assets that can be drawn down in the future to fund benefits.” Future benefits “will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.”

What Krauthammer means is that as Social Security draws down its trust fund, it sells bonds back to the Treasury. The money it gets for those bonds comes from the general fund, which means that it does indeed have an effect on the deficit.

That much is true. But the idea that the trust fund is a “fiction” is absolutely wrong. And since this zombie notion is bound to come up repeatedly over the next few weeks, it’s worth explaining why it’s wrong. So here it is.

Starting in 1983, the payroll tax was deliberately set higher than it needed to be to cover payments to retirees. For the next 30 years, this extra money was sent to the Treasury, and this windfall allowed income tax rates to be lower than they otherwise would have been. During this period, people who paid payroll taxes suffered from this arrangement, while people who paid income taxes benefited.