Salon.com
Dec 10, 2010 08:30 ET
Obama is dealing away FDR's legacy
Cutting the payroll tax could boost the economy now -- and it could also destroy Social Security later
By Julian E. Zelizer
Zelizer is a history professor at Princeton University. He is the author of "Jimmy Carter," "Arsenal of Democracy," and the editor of "The Presidency of George W. Bush."
“….President Obama's compromise with Republican leaders to extend the Bush tax cuts for the wealthy, there has been less discussion about a feature of the deal that could have enormous long-term consequences: the payroll tax holiday.
Under the plan, which still must be approved by the House and Senate, the payroll tax would be cut by 2 percentage points for all wage-earners -- meaning that a worker making $40,000 would receive an extra $800 in his or her paycheck over the course of a year. The White House and its defenders are touting this as a way to boost the stalled economy, and it might just do that. But they're also playing with fire…..For supporters of the program, the use of Social Security tax reductions for economic stimulus is a dangerous political precedent. The tax holiday plays directly into the "Starve the Beast" strategy that conservatives have pursued since the 1980s. After Ronald Reagan's election in 1980, Republicans learned that directly attacking domestic programs was hard to do. When Reagan pushed for cuts in Social Security in 1981, he faced a massive backlash that forced him to back down. President George W. Bush encountered the same fate in 2005 when he tried to spend his political capital on Social Security reform. The lesson was learned. Republicans instead focused on a strategy whereby ongoing tax cuts would gradually leave the federal government with less revenue for new programs and make existing programs susceptible to attack as a result of deficits….
A key reason for the program's strength has been the sanctity of the Social Security tax, which has been treated as a special tax, distinct from income and corporate taxes, on the grounds that it is linked to a specific government benefit. Every year, Congress uses the funds collected from payroll tax contributions of workers to pay for the benefits of current retirees. "With those damn taxes in there," Franklin Roosevelt once declared, "no damn politician will ever scrap my Social Security program."……President Obama and the congressional Republicans agreed to break with this precedent. In the future, proposals to further cut Social Security taxes -- including to do so on a permanent basis -- will certainly be on the table. Once politicians have tasted the political sweetness of tax cuts, they always come back for more. If they succeed, it will worsen the long-term budgetary challenges facing Social Security and create more room for opponents to attack. Indeed, simply by entering into a bipartisan agreement to change the way that Social Security taxes are discussed, the odds improve that one day, some politician might very well be able to scrap FDR's program.”
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