Social Security at risk in payroll cut plan
Phil Kadner email@example.com December 15, 2010 10:38PM
Updated: September 24, 2012 6:25AM
For at least 25 years, I’ve heard liberals and conservatives screaming about the need to shore up the Social Security Trust Fund.
Since the Internet began, hardly a week has gone by without an e-mail coming to me, screaming that some politician is trying to destroy Social Security.
Yet this week, as President Obama and congressional leaders announced plans to cut the Social Security payroll tax by 33 percent, there’s been hardly a peep out of anyone about the potential danger. Payroll contributions under the plan would be cut by 2 percentage points, from 6.2 percent to 4.2 percent.
I chose to use the 33 percent cut in Social Security contributions because that’s the type of horrifying language that people generally use in these situations. In this case, it also has the benefit of being accurate.
The Obama administration says not to worry because this is only a temporary, one-year cut in payroll taxes. Supporters in Congress are quick to explain that the Social Security Trust Fund wouldn’t actually lose any money because the federal government will replace the lost payroll contributions with $112 billion in general revenue funds.
Unfortunately, the federal government doesn’t have $112 billion sitting in some bank account, so it will have to take out a loan (from China?) to replace that money.
Never mind. Despite all those worries about putting future generations into debt, the fact is no one in Washington cares.
But here’s the real problem, as I see it. This is not going to be a temporary, one-year payroll tax holiday. This may be the step that really destabilizes the Social Security Trust Fund.
Next year, when it comes time to restore the cut, some people are going to scream that Congress is threatening to raise payroll taxes 50 percent. That’s because the tax will be going from 4.2 percent back up to 6.2 percent.
You’re already seeing this sort of tactic play out in the debate over the Bush tax cuts, which were supposed to phase out this year.
Now, any politician who refuses to extend the tax cuts is portrayed as favoring a tax hike that will take food out of the mouths of middle-class children and force millionaire businessmen to lay off their janitors.
The primary purpose of the Social Secuirty payroll tax cut, pushed by the Obama administration, is to stimulate the economy. Over the course of a year, it is estimated that a person earning $50,000 will get another $1,000 in his pocket and person making $100,000 will get $2,000.
U.S. Rep. Dan Lipinski (D-3rd), of Western Springs, questioned the impact on the economy.
“The average person isn’t even going to notice a 2 percent decrease in his payroll checks,” Lipinski said. “It’s not like we’re handing people checks for $500 or $1,000 here and saying ‘spend it.’ This is going to be a trickle of money into each person’s wallet, and I don’t think they’re going to rush out to the stores and start spending.”
Indeed, I would wager most people won’t even notice the difference.
“I would favor a more direct stimulus plan where instead of replacing money lost to the Social Security Trust Fund, the government just went out, borrowed the money and sent checks to consumers,” Lipinski said. “That would have stimulated the economy and cost the same amount of money.”
Lipinski and U.S. Rep. Judy Biggert (R-13th), of Hinsdale, each said they had received very few phone calls or e-mails from constituents about the Social Security payroll tax cuts.
I’m not surprised. In most news stories about the package of bills Obama and congressional leaders have agreed to, information about the Social Security plan was buried near the bottom.
Even AARP doesn’t seem to care much, with a spokesman saying the organization has made it clear to members of Congress that it’s OK with the deal so long as it is temporary.
Lipinski and Biggert said they planned to vote for the package of bills because it includes the tax cuts and the extension of unemployment benefits. U.S. Rep. Jesse Jackson Jr. (D-2nd), of Chicago, has said he will vote against the package.
But the package will pass because voting against any one piece would cause the whole thing to collapse. And that’s the sort of thing Congress does on a regular basis.
Will that happen again when the Social Security payroll tax cut expires next year? That’s my fear.
A recent poll by the Washington Post and ABC showed that 57 percent of all Americans were opposed to the Social Security payroll tax cut, even if it put more money in their pockets.
The average guy does understand the potential for disaster here.
This is a dangerous game Congress is playing.
Someone needs to tell these people to keep their hands off Social Security.