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On Social Security Payroll Tax Cut as a Hidden Threat to Social Security

By Mike Konczal on 12/09/2010 – 8:40 am PSTLeave a Comment

If you haven’t seen it yet, please read The End of Social Security by Nancy Altman. A brief part:

…Given that unwillingness to raise taxes by less than a nickel on every dollar earned over $1 million, I find it unfathomable that a more conservative Congress, in two years, in an election year, will increase the payroll tax by 2 percent on the very first dollar, and every other dollar up to the cap, earned by virtually every single worker in the country. Consequently, I think we have to assume that the payroll tax holiday will be extended beyond the two years the president is proposing and quite likely could become permanent.

That means that the federal government will have to continue to transfer $120 billion to the Social Security trust funds each and every year even as it has to transfer more and more interest payments as the trust funds continue to grow and as interest rates return to more normal levels…

FDR recognized that a visible dedicated contribution makes it both politically and morally difficult for future politicians to cut Social Security. When pressed about the impact of payroll taxes on the economy, FDR said:

“I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”

…Today’s Democrats fail to understand the program, and so are not only blind to subtle assaults against it, but seem to conspire in those assaults. All I can say is that with the Republicans and the Democratic President, perhaps unwittingly, conspiring to destroy Social Security, the American people don’t stand a chance.

It’s clear that it would be an ugly battle to raise this payroll tax in 2012 when unemployment will likely be 8%+. If we took $120bn out of the general fund and put it in the “Making Work Pay Awesomer To The Extreme” fund that mailed out checks it could be set up to have similar effects without setting up a mistaken understanding that Social Security was being raided to pay for a stimulus program. (We could also created an infrastructure bank with that $120bn….)

Because the talking points - “Unemployment is still record high, above 9.0%, even though you liberals blew another trillion dollars on a second stimulus package. Even worse, you did it by volunteering to make Social Security even less solvent in your bizarre stimulus schemes” - are on the way, and I don’t want to be the person whose arguments are conditional on a sophisticated public understanding on the role of the general fund reimbursements to the trust fund.

I wasn’t sure how worried to be about this until I saw Ryan Grim’s Tax Cut Deal A Hidden Threat To Social Security article, where he finds Republicans more than happy to frankly explain how this will become permanent, and how it’ll be used to jump start a conversation about Social Security reductions:

….”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

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Tags: , , , security trust funds, social security program, social security trust

Related Articles:

  1. Taking Social Security Early
  2. Social Security Retirement Benefits: The Basics
  3. Understanding Tax Payroll and Where Your Money Goes
  4. An Introduction to Social Security Disability Programs
  5. Impact of Traditional and Roth IRAs on Social Security Benefits

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