The mainstream media are filled with stories about the surprise experienced by American workers this month. Social Security’s FICA tax will rise by two percentage points this year.
Someone making $50,000 will pay an extra $1,000.
It turns out that workers forgot to budget for this. They did not know that they would be pushed over their own personal fiscal cliff. They thought the tax hike would only affect rich people.
What’s this? You mean lunches are not free? You mean somebody has to pay for granny’s retirement? Will wonders never cease?
Of course, the present value of the gap between the promises made by the government and the taxes expected to be collected is now $222 trillion for Social Security and Medicare. But this does not faze Congress. Congress will deal with that later. For now, two percentage points will have to do.
This supposedly will reduce the growth in the economy by one-half of one percent. Why do Keynesian economists believe this? The money taken out of workers’ paychecks will be spent by the government. It will go to oldsters. They will spend it.
Tax hikes redistribute wealth. They rob from the victims and buy votes from the recipients. But Keynesian theory says that government spending gooses the economy. It amazes me that Keynesians think that this tax hike will reduce economic growth.
Workers are inside the can that Congress has kicked down the road again. They are getting a foretaste of taxes to come, or inflation to come, or both.
At some point, there will be a tax revolt. Then granny will find herself short of funds. She will call on her family to make up the difference.
Families have not budgeted for that, either.