SuperCommittee, Employment Taxes and Warren Buffett

Congress is in recess for a few more weeks. The President is riding around the Midwest in an armored-plated bus. Iowa is out of the news, thank goodness for a few more months. The federal deficit is increasing about $4 billion today and tomorrow plus for days on end. Not to despair, there is plenty going on.

The Congressional Leadership announced last week the names of the Members who will take the twelve spots on the Joint Committee to reduce the deficit, the so-called Super Committee. This august body is directed to come up with a plan to reduce the Federal deficit about $1.2 trillion or so in the next ten years. Big Deal, but that is another subject. If it does not act or if Congress does not approve of the plan, there will be some pre-ordained spending limits in certain areas. Of course, it is a bit more complicated than this but not worth the detail here.

I was going to grade the Members but it is too early and not yet productive. Let’s give them a chance. Suffice it to say, they are all honorable politicians and confess to have open minds and the interest of the country at heart. That may or may not be the case. Of course this whole structure is idiotic and a complete collapse of responsibility and normal legislative procedure.

At first glance, I have to say, there are two good thoughtful selections among the twelve plus three political hacks, two pawns, a puppet, a Gumby and three hardliners. It looks on the surface the Democrats have appointed a fair representative body of their political philosophy while the Republican side looks only slightly less doctrinaire. However, even if that is the case, these eleven men and one woman will be under great pressure from outside groups. (One member of the Super Committee has already tried to line up a fundraiser touting his new position.) In addition, the Congressional Leaders who appointed them will be looking over their shoulders. In the end, if there is an agreement, it will have to be one that can pass both the conservative House and the liberal Senate. Not quite a dramatic as the debt limit increase but it will do for now.

It is speculative to even try to predict whether an agreement will be reached. There will be the usual conflicts- tax increases versus some type of entitlement reform.  However, one interesting issue on the tax side is the extension of the two percent deduction on employee Social Security tax. I have written on his before. What makes this particularly interesting is its revenue cost-around $110 billion a year. The so-called Social Security Trust Fund is already in a negative cash flow or should I say asset-depleting position. Just as a side note, I think the myth of the trust fund has pretty much be exposed during the debt limit threats by the President himself. 

The Administration has come out in favor of extending this reduction and I think that is a good idea. Our reasons are different, theirs is purely political and mine is economic. However, the issue become, how does that mesh with the deficit reduction. Will the Super Committee address it and if so, seems like they will have to come up with a combination of revenues and spending cut to meet their mandate if it is included. 

One final thing and that involves the widely reported piece written by (or for) Warren Buffet. Mr. Buffet has called for higher tax rates on the “mega rich”. His politics are well known so I do not think this opinion is a coincidence. But orchestrated are not, he does raise an interesting point and a point made here time and time again. What is the appropriated tax rate for various levels of taxpayers? How much should a person pay? Is there a correlation on economic growth, investment and marginal rates? At what point does all the money belong to the government and they decide how much a person can keep? If revenues do increase from tax changes, what is to prevent the government from continuing to spend at alarming rates?  It is a debate worth having in a proper legislative setting and for this Mr. Buffet did a service. In the interim, if he feels so under taxed, he can contribute to the government or perhaps to a worth public charity not under his control.