Obama Payroll Tax Cuts Seen Undermining Social Security

Obama Payroll Tax Cuts Seen Undermining Social Security
Brian Faler
Monday, December 5, 2011

Dec. 5 (Bloomberg) -- Some Democratic lawmakers say that, while President Barack Obama's plan to cut payroll taxes may strengthen the U.S. economy, it may have some unintended fallout: weakening Social Security.

The lawmakers and advocacy groups say they are concerned the tax cuts may undermine political support for the retirement program, which provides benefits to almost 55 million Americans and is funded by the payroll levies.

"I don't object to putting more money in people's pockets, and there are lots of ways to do that, but not with Social Security," said Representative Rush Holt of New Jersey, who said he will have a hard time supporting the White House plan.

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Still, Obama's proposal comes amid growing concern about Social Security's finances. The program has begun spending more on benefits each year than it receives in payroll tax revenue and, starting in 2036, won't be able to pay full scheduled benefits, according to the trustees' latest report.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/12/05/bloomberg_articlesLVR12J0YHQ0X.DTL

The NYT wrongly told readers that the payroll tax cut cost Social Security, "resulted in $67.2 billion of lost revenue for Social Security in 2011." This is not true. The tax cut was fully offset by money from general revenue so that the trust fund was unaffected by the tax cut.

The 'raiding the trust fund' - which for some reason you find innocuous in the first place - is borrowing against existing funds.

The payroll tax cut prevents the funds from being there in the fist place.

The first, bad as it is, has a clear-cut IOU attached to it - borrowed funds must be repaid, preferably with interest.

In the second case, how do you 'pay back' something that does not exist?

This is the deliberate defunding of Social Security, not as suggested an unanticipated byproduct.

Only a moron would believe otherwise.

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/the-payroll-tax-cut-a-stimulus-that-progressives-should-oppose

The Payroll Tax Cut: A Stimulus That Progressives Should Oppose

Dean Baker
Truthout, July 25, 2011

President Obama is proud of the fact that he was willing to bargain away the core of the country’s social safety net to reach an agreement with the Republicans on the debt ceiling. According to accounts of the negotiations, he had agreed to raise the eligibility age for Medicare to 67. He had also agreed to a change in the cost-of-living adjustment formula for Social Security that would reduce benefits by an average of more than 3 percent. This is in addition to the cuts in Medicaid and other programs that would also have been part of the deal.

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This raises the possibility that Republicans will try to keep the lower Social Security tax rate in place indefinitely. If there was a commitment to permanently replace the program’s shortfall with general revenue, the loss of the payroll tax revenue would not matter. However, there is no such commitment.

Obviously the Republicans want to reduce Social Security’s revenues so that they can turn the fictional Social Security crisis into a reality. If the program were to permanently lose the revenue from 2 percentage points of the payroll tax then Social Security would first face a shortfall in a bit more than a decade, rather than the quarter century of full solvency currently projected by the Trustees. And the size of the projected shortfall would be instantly doubled.

This scenario would not be a problem if President Obama had demonstrated a firm commitment to Social Security and indicated his willingness to go to the mat to protect the program. But he has done just the opposite. He has told the world that he is such a reasonable guy he is prepared to make major cuts to Social Security.