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The Payroll Tax: Same Problem, New Year

e21 | January 9, 2012

The White House opened 2012 with deputy press secretary Josh Earnest saying a full extension of the payroll-tax cuts through 2012 was the last “must-do” item left on the president’s congressional agenda heading into November’s election. The conference committee is appointed and will convene when the House returns on January 17th, and much of the political banter will revolve around how to off-set the costs of a payroll-tax extension. However, both liberals and conservatives are starting to question the greater meaning of reducing payroll-tax revenue which is designed with the specific purpose of funding Social Security and the lack of wisdom behind such a reduction.

Perhaps former President Harry Truman summed it up best by proclaiming "Social not a dole or a device for giving everybody something for nothing. True Social Security must consist of rights which are earned rights -- guaranteed by the law of the land." The payroll-tax is the means by which Americans earn the right, Truman mentions. By having to redirect billions from general revenue to cover 2011’s shortfall from Obama’s use of a payroll-tax holiday, the connection which has kept Social Security from simply being a government program to redistribute wealth has been severed. This is a crucial link that has always tied what a worker puts in to social security with what he is ultimately able to collect, rather than devolving the system in one giant hand out. With Obama pushing for another extension, liberals and conservatives are both beginning to question the greater meaning behind the payroll-tax extension, especially given concern the payroll-tax “holiday” could turn become permanent. Here is what they are saying:

  • In a WSJ editorial, former White House press secretary Ari Fleischer wrote “But cutting the payroll tax while holding Social Security payments steady means there really is no trust fund and Social Security is just another redistribution-of-income program.”
  • A great Washington Post piece, by Jia Lynn Yang, asked Social Security trustee, Charles Blahous about the issue where he responded “It just seems to me the program both financially and politically will be on a lot rockier footing.”
  • The same Washington Post piece included comments from the other public Social Security Trustee, Robert Reischauer, who said the holiday “could, if it [payroll-tax holiday] continues for a substantial period of time, undermine one of the foundational arguments that makes the Social Security program inviolate.”
  • Nancy Altman, co-director of Social Security Works, commented on using general revenue to fund Social Security by saying “All of a sudden Social Security will have to compete with every other program, whereas before it had its own dedicated revenue.”
  • In a post on his Huffington Post blog, Robert Kuttner, writes “it will never be a good time politically for either party to vote to raise Social Security taxes on working people, even once the economy is back in recovery. So the trust funds will be permanently reliant on subsidy from general government revenues. That, say critics, will make it seem less solvent, and less like an earned benefit, further softening Social Security up for privatization.”

While no one on either side of the aisle is proposing cuts to Social Security to compensate for the reduction in revenues, especially in an election year, it does seem important to remember the standards which have made Social Security Americans’ way of earning financial security. If the program is to continue, Congress and the White House have an obligation to adequately fund Social Security regardless of the political winds, and do so in a manner which maintains its integrity, while also working to lighten the onus taxes place on Americans and their economy.

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