2% Payroll Tax Cut is the Beginning of the End of Social Security

Social Security Payroll Tax “Holiday” is No Gift to Americans

This 2% payroll tax cut is the beginning of the end of Social Security as we know it. Worker contributions have successfully funded the program for 75 years and that critical linkage between contributions and benefits is what keeps Social Security a self-funded program. Proposals like this threaten the program’s independence, forcing Social Security to compete for limited federal dollars. - Why the Payroll Tax Holiday will Cripple Social Security, Democratic Underground, December 7, 2011

December 10, 2010

NCPSSM - Briefing reporters today, National Committee President Barbara Kennelly, Social Security Works Co-Director Nancy Altman and CEPR Co-Director Dean Baker warned that passage of a payroll tax holiday could have devastating effects on Social Security’s long-term financing.

“As we’ve seen in Washington these days, it’s easy to enact tax cuts but virtually impossible to allow them to expire. This payroll tax holiday proposal will be no different. Election year politics in 2012 will doom the repeal of this $120 billion dollar cut and Social Security beneficiaries will then pay the price.

The American people understand we’re in an economic crisis yet they don’t want to trade their future security for a short-term benefit. They didn’t ask Congress to cut their Social Security contributions, in fact, poll after poll shows they’d pay more to preserve Social Security. I salute the House for saying we need to give this deal another look because this payroll tax provision is no deal at all.”…Barbara B. Kennelly, President/CEO National Committee to Preserve Social Security and Medicare

While the White House promises there will be no long term impact to Social Security because this is a one year “holiday”, clearly Republicans have a very different idea. Consider this quote from President Bush’s spokesman Dan Bartlett, who gleefully describes their strategy which saddled our nation with billions in tax cuts for the wealthy:

“We knew that, politically, once you get [a big tax cut] into law, it becomes almost impossible to remove it. That’s not a bad legacy. The fact that we were able to lay the trap does feel pretty good, to tell you the truth.”

Clearly, GOP Senators also agree with the “temporary means permanent” tax trap:

“Once you bring a rate down, if it goes back up, people will feel that. They’ll feel their paycheck being less and that argument” — that letting it expire amounts to a tax hike — “eventually is bound to be made,” said Sen. Mike Johanns (R-Neb.).

“There’s always a tendency to continue those things… Once something comes in, it’s very difficult to change it,” said Sen. George Voinovich (R-Ohio.)

He then volunteered, without prompting, that

“It would be detrimental to the Social Security system, especially when it’s in bad shape.”

HuffPost noted that some of his colleagues would likely treat the deprivation of Social Security funds as a benefit of such a circumstance rather than a drawback.

“I suspect so, yes,” agreed Voinovich.

Conservatives have long dreamed of a payroll tax holiday specifically because it fulfills two ideological goals, lower taxes and weakening Social Security’s finances. Worker contributions have successfully funded the program for 75 years and that critical linkage between contributions and benefits is what keeps Social Security a self-funded program. Proposals like this threaten the program’s independence, forcing Social Security to compete for limited federal dollars. If made permanent, this payroll tax cut would then double Social Security’s 75 year projected shortfall.

“While the payroll tax cut is sure to be a welcome increase of income for workers, it is also likely to deepen the public’s distrust of Congress and the President, and reinforce the belief held by much of the public that Congress is raiding Social Security.

Past Congresses have worked hard to maintain a wall between Social Security’s funds, which, by law, must be used only for Social Security, and the government’s general fund, which can be used for any purpose, limited only by the Constitution.

The proposal, if enacted, will reinforce the public perception that Congress is cavalier with their contributions, intermingling them at will and substituting general revenue for dedicated workers’ contributions — because that is just what the proposal does.” Nancy Altman, Social Security Works Co-Director

We agree there is a need for more stimulus; however, this payroll tax holiday isn’t the most effective way to provide that economic boost. According to The Center for Budget and Policy Priorities, extending the “Making Work Pay Tax Credit” is a much better and targeted stimulus.

“If the point is to provide a boost to the economy the quickest, fairest, and most effective way would be to simply extend and expand the Make Work Pay tax credit. This has about 10 percent more bang per buck than the payroll tax holiday and would go to all workers, including the state and local government employees not covered by Social Security.”…Dean Baker, Co-Director Center for Economic and Policy Research

Senator Bernie Sanders (D-VT) understands how important this issue is to seniors. Not only has he repeatedly sponsored COLA relief legislation and fought that fight multiple times, he’s now on the floor of the Senate filibustering in the hope that Senators will go back to the table and negotiate a deal that doesn’t trade short term stimulus for long-term pain. You can watch him in action streaming live from his website or on CSPAN.

You also can read details on this issue in the National Committee’s Policy Review of the Payroll Tax “Holiday”.

NOW is the time for seniors to say enough is enough. Tax cuts for the rich combined with threats that weaken Social Security’s funding is not the answer.

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