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Michael Michaud

Just because a deal is cut doesn't mean it's good for Maine
By Representative Mike Michaud
Dec 18, 2010 - 12:09:57 AM

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When I looked past the headlines and dug into the details of the massive tax package that Congress passed and the President supported, I found out that major portions of it were a bad deal for Maine.

I support providing tax relief. That's why I voted for a bill that would provide a tax cut extension to all American taxpayers. Unfortunately the Senate blocked it and didn't take it up. Instead they negotiated behind closed doors with the President and insisted on a tax package that adds nearly $1 trillion to our national debt and provides massive tax breaks to millionaires and billionaires. The package also puts the future of the Social Security system in jeopardy and shortchanges Maine's public employees.

In fact, in their rush to get a deal, they ended up leaving nearly 50,000 Maine police officers, firefighters, teachers and other public employees out of one of the key provisions of the bill - the much touted payroll tax holiday, which reduces for one year the amount workers pay in Social Security taxes. This is simply unfair, and it discriminates against an entire segment of hardworking Mainers.

These Mainers were left out because many states, including ours, have a substantial number of local and state employees that do not participate in the Social Security system. Because of this they will receive no benefit from the payroll tax holiday contained in the bill. Before the House voted, I recognized that this tax holiday would leave many hardworking people in our state without additional tax relief, and I wrote to congressional leaders urging them to abandon this approach and adopt an alternative. Unfortunately, that didn't happen.

Instead of a payroll tax holiday, Congress should have considered an across-the-board refundable tax credit like the "Making Work Pay" tax credit that was passed as a part of the Recovery Act. For the cost of the payroll tax holiday, we could have doubled the "Making Work Pay" tax credit in order to provide up to $1,600 in extra take home pay for hardworking families. This approach would have ensured that all Mainers got an additional tax break, including Maine's 4,784 local employees, 14,565 state employees and 28,580 teachers.

But this payroll tax holiday is even more troubling when you look at its effects on the Social Security system. The tax package finances the tax holiday by taking $112 billion from the Social Security trust. It would then repay the trust fund with general revenues, which represents borrowed money that would be added directly to our already record national debt.

While this might sound innocent enough, it sets a very dangerous precedent that will be hard to pull back from. Social Security shouldn't be treated like any other federal program that is dependent upon the whims of Congress and has to compete with hundreds of other programs each year that are funded through general revenues and subject to cuts.

Using the Social Security system to finance tax cuts is not the way to go no matter how laudable the goal. Congress is great at passing temporary tax cuts, but almost never lets them expire. Congress and the President worked together to pass an extension of tax cuts for the wealthiest Americans, so why wouldn't they seek an extension of the tax holiday in a year? I wouldn't be the least bit surprised to see members of Congress who supported and helped negotiate this deal calling the expiration of the tax holiday next year a "massive tax increase on the middle class."

The bottom line is that if this tax holiday is continued beyond one year or made permanent, it would have a devastating effect on Social Security's long-term financing and could dramatically increase the program's projected shortfall. Using the Social Security trust fund as a congressional slush fund is irresponsible and opens the door to it being raided again in the future. The system has worked well since its creation, and I don't want to see the unraveling of the program and the well-being of Maine seniors threatened.

But even beyond these concerns, the tax package adds nearly $1 trillion directly to our already record level of debt. In fact, the credit rating agency Moody's is now warning that this package will raise our debt to such a high level that it could jeopardize our nation's credit rating. This would be disastrous because it could call into question the value of the U.S. treasuries that finance our massive debt, making the U.S. even more beholden to countries like China, which is the largest foreign holder of U.S. treasuries.

How this Congress and this President think that the way forward on tax policy is to spend more and borrow more is beyond me. Maine families and small businesses balance their checkbooks, and it's long past time that the federal government at least attempts to do the same. I hope that our country can weather the debt storm that will be created by this bill, but we shouldn't have taken this gamble in the first place. Just because a deal is cut doesn't mean it's a good one for Maine.

Representative Mike Michaud


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