Explaining Southern California's economy

The tax cut even Republicans can hate

Reid And Senate Democrats Speak On Payroll Tax Plan

Chip Somodevilla/Getty Images

WASHINGTON, DC - DECEMBER 07: Senate Majority Leader Harry Reid (D-NV) (C) holds a news conference about extending the payroll tax cut with Senate Majority Whip Richard Durbin (D-IL) (L) and U.S. Sen. Robert Casey (D-PA) at the U.S. Capitol December 7, 2011 in Washington, DC. Reid promised that the tax cut, which is set to expire at the end of the year, will be extended even if he has to keep the Senate in session through the holidays. (Photo by Chip Somodevilla/Getty Images)

The debate in Congress over the payroll tax-cut extension, which is going down the same route as...pretty much every other debate in Congress this session, has created a sort of political Bizarro World. The proposed legislation wouldn't just extend the payroll tax cut, it would also tackle other funding issues. But the payroll tax-cut is where the action is.

The concern, among a strange axis of conservative Republicans and liberal Democrats, is that extending the tax cut will threaten Social Security. Benefits outpaced revenues in 2010. But as this chart from the New York Times shows, that's not unprecedented — Social Security payments ran above revenues in the 1970s and '80s. 

However, since the late 1980s, Social Security has been running a surplus, with the extra money invested in interest-earning Treasury bonds. That funds now stands at $2.6 trillion. The cost of the payroll tax cut? $105 billion.

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Herman Cain says his plan to reform Social Security worked for Chile, but can it work in the USA?

Herman Cain is now polling alongside perpetual Republican kinda sorta frontrunner Mitt Romney. Today, KPCC's AirTalk did a segment on the sudden arrival of the Cain Train. Time to get up to speed on everything the pizza king stands for, and fast! Yesterday, it was the 9-9-9 plan to reform the tax system. Today, it's Cain's scheme to fix Social Security.

In the CNN/Tea Party Debate, Cain said his plan could copy the "Chilean Model" (see the above video). So what does that mean?

It means privatizing Social Security, as Chile did in the early 1980s. José Piñera, the Chilean government official who oversaw the conversion of his country's social security system from its classic model to one based on private investment accounts, explained how and why he did it, back in 1997 (his account now lives on the Cato Institute site).

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