On Monday, November 28 a small cadre of Senate Democrats introduced legislation intended to extend and expand the payroll tax cut first introduced by the Jobs Creation Act of 2010. The Middle Class Tax Cut Act of 2011 (S.1917) – drafted chiefly by the Chair of the Joint Economic Committee , Senator Bob Casey (D-PA)— was summarily rejected by Republicans late last week. (Read the text of S.1917 here: http://thomas.loc.gov/cgi-bin/query/z?c112:S.1917) Two weeks earlier Republican leaders threatened to reject wholesale any bill imposing tax increases on the wealthy and with the single exception of Senator Susan Collins of Maine every Senate Republican voted against the measure. Bernie Sanders—celebrated social-democrat from Vermont—also voted against the bill. Had S.1917 passed it would have reduced the social security payroll tax on employees and on the self-employed from 4.2% (already reduced under the Jobs Creation Act of 2010 from the regular 6.2%) to 3.1% for 2012. The bill would also have cut the social security payroll tax levied against employers on the first $5 million of taxable payroll from 6.2% to 3.1%. Senate democrats claimed that their proposal would have been fully subsidized by assessing a surtax on modified adjusted gross incomes in excess of $1 million.

And then yesterday—a mere four days after the rejection of his first proposal—Senator Casey amended his bill to meet a number of republican demands. In an effort to assuage Republican concerns that the overall package was too large, the most current iteration of S.1917 no longer provides any tax break for employers thereby cutting the size of the package by roughly one-third, from $265 billion to $185 billion. Secondly, the amended bill substantially reduces the surtax on the wealthiest Americans. The bill pares down the surtax on modified adjusted gross income in excess of $1 million from 3.25% to 1.9%. The surtax also has been made temporary, not permanent as the in the original bill, and would expire after 10 years. The bill also “protects” Social Security because it requires that the Trust Fund be made whole through transfers from the U.S. Treasury’s General Fund. That is, according to an earlier statute—the Railroad Retirement Act of 1974— any diminished contribution to the Social Security Trust Fund as a result of a payroll tax reduction must be recouped, by law, through the U.S. Treasury Department’s general fund.

In October, 2011 Slovenian philosopher Slavoj Zizek spoke to a crowd of “Occupy” protestors gathered in Zuccotti park and asserted that we as “left activists” need to “set our priorities straight here. We don’t want [a] higher standard of living. We want a better standard of living.” http://www.imposemagazine.com/bytes/slavoj-zizek-at-occupy-wall-street-transcript That is, offering working and middle-class families an additional $1,200 in tax relief does little to challenge the superannuated character of our tax structure. In addition, compensating the diversion of hundreds of billions of dollars from the payroll tax by the Treasury’s general fund represents the yet another step in debt-financing. (This is precisely why Senator Bernie Sanders voted against the bill last week.) If this law passes, the U.S. government will continue to credit the Social Security Trust Fund as though the worker share of the payroll tax rate were still 6.2%, even though in reality it will only collect 3.1% from workers. The net effect of this bill will be the issuance of up to $500 billion in additional debtto the U.S. Treasury in 2013 alone.

This is alarming.

The passage of S.1917, a seemingly progressive law, ultimately shifts Social Security’s financing base from payroll taxes paid by today’s workers to higher income tax burdens on our children’s generation. Collecting payroll taxes increases the balance of the Social Security’s Trust Fund and aids in the government’s ability to finance benefits. However, issuing revenue-financed debt to the Trust Fund transferred by the U.S. treasury simply increases the program’s authority to pay benefits without increasing the government’s actual ability to pay. Such increased debt owed by the general fund will be paid largely from future income taxes. That is, imposing an additional 1.9% surtax on millionaires for ten years simply does not generate enough revenue to offset the reductions in payroll taxes ultimately compensated by the Treasury’s general fund.

Yes, working and middle-class families would wholeheartedly benefit from a reduction in payroll taxes in the short-term, but long-term strategies for both economic stabilization and growth must rely on a pay-as-you-go schedule which could be financed almost entirely by 1) closing corporate tax loopholes, 2) raising income taxes on the wealthiest 1% of Americans by 15%, and 3) treating capital gains as income for tax purposes. To this end, we must begin to assess the merits of amending Chapter 21 of the United States Code to require that an “amount equal to the reduction of FICA taxes be appropriated to the Social Security (and Medicare) Trust Fund” through income tax adjustments instead of through general fund transfers payments.

Next, we must increase taxes on corporations earning over $10 million in annual profit. Conservatives will object to this demand by contending that the United States boasts the second highest corporate tax rate in the world. The Right is only half-right on this score, however. Although the marginal U.S. corporate tax rate is set at 35%, large corporations pay an average effective tax rate of 18.5% after exemptions and subsidies. http://www.ctj.org/corporatetaxdodgers/CorporateTaxDodgersPR.pdf And some corporations pay far, far less. General Electric, for example, enjoyed U.S. profits of 5.1 billion in 2010 yet paid no U.S. corporate income tax. http://abcnews.go.com/Business/companies-ge-lower-taxes/story?id=13258952#.Tt7l41YdSSo And even though the U.S. corporate rate is the second highest in the world, corporate tax revenues amounted to only about 1.3% of GDP of in 2010 which amounts to just about half the average among OECD countries. http://www.ctj.org/pdf/oecd201106.pdf

Further, we should increase federal income taxes levied against the wealthy. We must raise the current highest marginal federal income tax rate beginning at $379,150 from 35% to 50%. (The highest marginal income tax rate during the Reagan era was 50%.) In addition, we must create additional tax brackets for the richest Americans: $1 million = 60%, $10 million =70%, $50 million =80%, for example. (The tax rate established by the conservative Eisenhower administration was 91%.)

Finally, we must increase the tax rates on capital gains from 15% to 35% for those earning more than $1 million on stock investments. (The average U.S. family owns less than $50,000 of asset values; the Capital Gains Tax rate rested at 35% during George H.W. Bush’s presidency.)

Malcolm X said it best, "You can't drive a knife into a man's back nine inches, pull it out six inches, and call that progress." This isn’t a battle of magnitude, but rather one of direction.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.