Tuesday, November 27, 2012

That payroll tax holiday

I've always been bothered by the idea that we had a payroll tax (FICA) break for the last couple of years at the same time Obama and the Republicans are trying to tell us that Social Security, Medicare and Medicaid cost too much. FICA funds both Social Security and Medicare.

The loss to the Social Security Trust Fund reduction that has been in place the last couple of years is being replaced from the General Fund.

Economists like this kind of tax cut, including liberal ones like Robert Reich, because it's an efficient way of increasing the amount of money in consumers' hands that is highly likely to be spent immediately. The problem is the politics of it: the whole point of having it in a separate trust fund is for people to feel a real sense of ownership of the program; it's a defined-benefit social insurance program. Having it funded in any way from the General Fund opens it to be branded as "welfare" by the Republicans and thereby targeted for cuts.

So I glad to see in this article by Arthur Delaney and Sam Stein, Obama Administration Not Sticking Up For Payroll Tax Cut Huffington Post 11/27/2012:

Other progressive economists and lawmakers have argued that if the payroll tax cut is not extended, something else should take its place. One top Senate Democratic aide called that "a pretty consensus view on our side." But there are clearly detractors. Many lawmakers and outside stakeholders have expressed concern that diverting tax money from Social Security -- which the payroll tax helps fund -- would weaken the program, which provides an average monthly benefit of $1,237 to some 40 million seniors. The Social Security Administration's actuaries say the trust fund will run out of money in 2033, at which point incoming tax revenue could support just 75 percent of benefits.

AARP, the lobby group for senior citizens, said in a statement Monday that it is glad the White House left the cut out of its tax report. The organization has previously said the payroll tax should return to normal.

"We're pleased the White House doesn't mention the payroll tax holiday since extending it would undermine Social Security’s separate dedicated funding source," AARP executive Joyce Rogers said in an email. "We also remain committed to keeping Social Security and Medicare benefit cuts out of any 'fiscal cliff' negotiations."

Sen. Bernie Sanders (I-Vt.), a self-described socialist who has been a vocal advocate of social insurance programs, said Monday that he is "strongly opposed" to keeping the tax holiday, since doing so could damage Social Security's solvency.

"The middle class deserves tax relief, but not at the expense of Social Security," Sanders said. "The president and members of his administration have been very clear that the payroll tax reduction was temporary and would not be extended. I expect them to keep that commitment." [my emphasis]

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