Social Security A 'Time Bomb' In Tax Cut Package
CHICAGO (WBBM/AP) - Expectations for economic growth next year are turning more optimistic now that Americans will have a little more cash in their pockets.
Chicago area portfolio manager Brad Gummow of The Gummow Group says the new tax package, overall, will be a boost to the economy.
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"It's a win for the American people. It's a win for American businesses."
A cut in workers' Social Security taxes and rising consumer spending have led economists to predict a strong start for 2011.
The tax cut bill signed by President Barack Obama last Friday extends the expiring Bush tax cuts for all income levels for the next two years. As for business, the legislation also will allow companies to deduct 100 percent of certain investments in the first year.
"So what this does is that it encourages companies to make capital expenditures and with expenditures comes jobs. Here we are in this job-starved area. I think it's fabulous. I'm really excited about it," said Gummow.
The loser, he says, in all this is Social Security, which was effectively trimmed by 22 percent.
"Social Security is a ticking time bomb, make no mistake." A mistake, he says, that comes in a time when more people are receiving benefits than ever before.
"It doesn't make economic sense to trim your revenues when you know in fact, you are already cash flow negative this year for Social Security and you're predisposed to be cash flow negative next year. Social Security is going to be in big trouble in 2017."
As for the 2 percent payroll tax cut, Gummow says Illinois employees will only see a slight difference. An average worker could see an extra $40 dollars in her bi-weekly paycheck but Gummow is skeptical.
"The average wage earner in Illinois makes about $50,000, so we're talking about $1,000 a year. The average worker gets two paychecks a month which means about $40 dollars more a paycheck. We all would like $40 more in our paychecks but the bottom line is we just saw an attempt to energize the economy last year by sending out checks to people and it really doesn't work, so it's really not worth the risk to put Social Security in jeopardy."
Gummow says the payroll tax cut is leaving Social Security with a multi million dollar shortfall.
As for the future, Gummow says this is where the real work begins for Congress. A first step, he says should be to follow our European colleagues. "Everyone of these countries that are realizing that their level of debt is unsustainable, they are realizing they have to combine cutting expense and some new levels of revenue."
Overall, Gummow says people and businesses are feeling more confident about the year ahead and that, he hopes will finally lead to a real economic recovery.
(TM and © Copyright 2010 CBS Radio Inc. and its relevant subsidiaries. CBS Radio and EYE Logo TM and Copyright 2010 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed. The Associated Press contributed to this report.)
