The tax “compromise” plan’s two-year, two percentage point proposed reduction in social security payroll taxes deducted from employee’s checks will provide some economic stimulus.  It will also increase the social security deficit and the need for changes to bring the program into balance.  From a political perspective, it could prove very difficult not to extend the payroll tax cut beyond two years.  President Obama can be expected to propose making the cut permanent and replacing the revenue lost by increasing the employer’s share of the tax and by raising or even eliminating the limit on the amount of annual earnings subject to the tax, even though it would discourage hiring.

Assuming that the tax compromise passes, the stage is set for a battle in 2012 on two tax fronts: marginal income tax rates and social security taxes.  There will be two major sources of uncertainty confronting businesses and workers.  The President and Congressional Democrats will have two levers to press in their attempt to tip the median voter towards a lower tax burden for low-to-middle income people and higher taxes on higher income earners, including thousands of small businesses. Depending on what happens economically the next 18 months, this class warfare agenda may have more salience with independents in 2012 than it had in 2010.  In any case, liberals and pundits who call the tax compromise a major defeat for the President are less astute than he.

The latest rounds of the long-run battle over bureaucratic interference in business and individual decision making have clearly been won by advocates of government control and micromanagement.  Substantial increases in bureaucratic control of health insurance and healthcare have begun to take place well before Obamacare’s individual mandate and other key provisions are scheduled to take effect in 2014.  Other examples range from the new moratorium on offshore drilling to costly new rules requiring sellers to indicate in labeling whether their products contain minerals from Central Africa.

In his 1944 classic, Bureaucracy, Ludwig von Mises elucidates the essence of bureaucratic decision making and warns of the fundamental incompatibility of extensive bureaucratic control with entrepreneurship, economic growth, and freedom.  His insights and warnings remain timely (excerpts from Arlington House Edition, 1969).

Representative democracy cannot subsist if a great part of the voters are on the government payroll.  If members of the parliament no longer consider themselves mandatories of the taxpayers but deputies of those receiving salaries, wages, subsidies, doles, and other benefits of the treasury, democracy is done for. (p. 81)

The truth is that government cannot give if it does not take from somebody.  A subsidy is never paid from the government out of its own funds; it is at the expense of the taxpayer that the state grants subsidies.  Inflation and credit expansion, the preferred methods of present-day government openhandedness, do not add anything to the amount of resources available. (p. 84)

The modern trend toward government omnipotence . . . would have been nipped in the bud if its advocates had not succeeded in indoctrinating youth with their tenets and preventing them from becoming acquainted with the teaching of economics. (p. 81)

[T]he main issues of present-day politics are purely economic and cannot be understood without a grasp of economics.  Only a man conversant with the main problems of economics is in a position to form an independent opinion on the matters involved.  All the others . . . are easy prey to demagogic swindlers and idiot quacks. (p. 111)

The main propaganda trick of the supporters of the allegedly “progressive” policy of government control is to blame capitalism for all that is unsatisfactory in present-day conditions and to extol the blessings which socialism has in store for mankind. (p. 111.)

Democracy means self determination.  How can people determine their own affairs if they are too indifferent to gain through their own thinking an independent judgment on fundamental political and economic problems? (p. 212)

Democracy is not a good that people can enjoy without trouble.  It is, on the contrary, a treasure that must be daily defended and conquered anew by strenuous effort. (p. 121)

Profit is the reward for the best fulfillment of some voluntarily assumed duties.  It is the instrument that makes the masses supreme.  The common man is the customer for whom the captains of industry and all their aides are working. (p. 88)