Last week, our government extended the payroll tax cut until
the end of the year, 2012. The Senate
approved the $143 billion measure on a 60-36 vote minutes after the House
approved it in a 293-132 vote. But we
did not permit the Keystone XL pipeline to go forward. You might ask how do the two relate.
Social Security Payroll Tax Cut steals from the future to
pay the present
While I am in favor of tax cuts, if spending is cut as well;
I am not in favor of the Social Security Payroll tax cut. This is the classic “Rob Peter to Pay Paul”
trick, or “I will gladly pay you Thursday for a hamburger today.” What makes this so thoughtless is that we are
drawing down on a future savings/retirement program, which for many is their
only source of retirement funds. How
this fund is to be repaid will not be painless – whether the corporations have
to pay more, thereby reducing their profits and potential employment, or
through payroll tax increases to offset the cuts, or some other creative
accounting slight-of-hand measure the our esteemed colleagues in Congress can
concoct. In any event, let us go to the
numbers. They extended the 2 percentage
point cut in the 6.2% Social Security payroll tax that would save around $80
monthly for someone earning $50,000 per year and give a maximum cut of $2,200
to high-end earners, which tops out at $106,000 per year.
No Keystone XL pipeline – results in an increase in oil
and gasoline prices
While approving the construction of the pipeline will not
have a short-term impact on the price of gas at the pump, much like its
predecessor pipeline from Alaska, the Keystone pipeline would secure a long-term
source of non-OPEC crude products available to U.S. refineries. Currently, global supply of crude remains
tight, primarily due to political tensions in the Middle Eastern countries that
are OPEC members. All of this is taking
place during a decrease in global demand for crude and its refined
products.
What has the gasoline price done since the payroll tax cut went
into effect?
Since the payroll tax cut was implemented in January 2011,
the Energy Information Administration (EIA), in its weekly U.S. All Grades
Reformulated Retail Gasoline price database, reported that for the first week
of January 2011, the average price was $3.201 per gallon. By the last week of December 2011, the EIA
reported that it was $3.413 per gallon.
By February 20, 2012, gasoline was $3.591 per gallon. Since the payroll tax cut was enacted,
gasoline is up $0.38 per gallon.
And how does this affect the average driver?
According to the U.S. Department of Transportation (DOT) as
of 2011, the average person drives 13,476 miles per year. According to the Bureau of Labor Statistics (BLS),
the average miles per gallon for a passenger vehicle is 27.5 mpg. Dividing 27.5 mpg into 13,476 miles per year
equals 490 gallons of gasoline purchased each year. With gasoline prices up $0.38 per gallon,
that translates to an additional $186 paid for gasoline per year. Back to our $50,000 per year employee, he/she
used two and one-half months of payroll tax savings to buy gasoline. Taking
this one step further, if in 2011, 48% of crude oil demand is imported (before
it is refined into gasoline), then $186 time 48%, or $90 (slightly more than
one month’s of payroll tax savings) is being sent offshore. Of that, approximately 44% of imported crude
is from OPEC. Approximately, $40 (44% of
$90) of the 2011 gasoline price increase was paid to OPEC. If prices go to $5.16 per gallon (not out of
the relmn of possibilities), 100% of the payroll tax savings will have gone to
the increase in the price of gasoline, with 18% of 100% going to OPEC.
We are paying OPEC at the expense of our elders’ retirement
plan. Think about that.
