An Overview of Why the Payroll Tax Holiday is Bad News for Social Security

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The National Committee to Preserve Social Security and Medicare's Director of Government Relations and Policy, Maria Freese, has two outstanding radio interviews where she explains the slippery slope of allowing a one year decrease in payroll tax contributions:

http://www.ncpssm.org/video/MariaDec10th2.wav (KPFA Berkeley, CA)

http://www.ncpssm.org/video/Maria_Dec_10th.wav (KPFT Houston, TX)

Also, here is a great overview of the payroll tax holiday and Social Security:

A Payroll Tax “Holiday” A Bad Deal for Workers and for America

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•There has been a lot of talk recently about giving America’s workers a payroll tax “holiday”. Both the President’s deficit reduction commission and the Domenici-Rivlin debt reduction task force have recommended payroll tax “holidays” and now the President is also calling for one.


•A common element of all the payroll tax “holidays” is to cut funding for Social Security. Currently, each worker pays 6.2 percent of their salary into the Social Security trust fund (up to a maximum that is currently $106,800) and their employer makes a matching contribution. Under the President’s proposal, in 2011, workers would contribute 4.2 percent of their wages to Social Security rather than the usual 6.2 percent.
•For someone who earns $50,000, that would result in an additional $19.24 per week in take-home pay. But it would cost the Social Security Trust Fund $120 billion in lost contributions.


•Diverting $120 billion from the Social Security Trust Fund for a “tax holiday” may sound like a good deal for workers, but it is bad business for the program and the millions of middle-class seniors depend on it—today and in the future.


•Coupled with the payroll tax cut, the President has included in his tax compromise a provision that would reimburse the Social Security Trust Funds for the $120 billion in lost revenue stemming from the tax cut. These reimbursements would come from the general fund of the Treasury, and while that may seem to be superficially reassuring, changing Social Security’s funding in this manner hasn’t been fully thought through and in fact poses a serious threat to the program’s continued existence.


•The advocates for a tax “holiday” say to America’s seniors, “trust us, this tax holiday will last only for one year, and then funding for the program will revert to the old tried and true method.”


•But if we’ve learned anything in the last few weeks, it’s that there is no such thing as a “temporary” tax cut. If Congress is unwilling to allow tax cuts for wealthy Americans to expire, then why would it allow this so-called “holiday” end in one year?


•The short answer is that it wouldn’t. We can expect that any attempt to allow the payroll tax cut to end would be portrayed as a massive tax hike rather than the legislated end of the “holiday.”

READ THE REST: http://www.ncpssm.org/news/archive/payroll_tax_holiday/

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