'Temporary' Social Security Payroll Tax Cut Has Permanent Effect

Congress and the Administration appear to have finally found that “magical convergence of good policy and good politics” on which both sides can agree: the extension of the Social Security payroll tax cut. After all, it’s arguably the perfect bipartisan policy—a tax cut that’s “productive, progressive and paid for—what’s not to like?

But supporters fail to acknowledge its permanent damage to the Social Security program itself, say Mercatus Center scholars Charles Blahous, Public Trustee for Social Security and Medicare, and Jason Fichtner, former Social Security Administration Deputy Commissioner.

Fichtner says, “The staunchest supporters of Social Security are those pushing the hardest to cut the program's chief financing stream—the payroll tax. Severing the link between payroll taxes and benefits means beneficiaries could no longer claim they ‘earned’ their Social Security benefits. This would erode future support for this vital program.

“Policymakers on both sides of the aisle argue that allowing the ‘temporary’ payroll tax holiday to expire would hurt the economy and jobs. But the same argument can—and likely will—be made year after year. This is no ‘temporary’ change.”

Blahous says, “Social Security was not established to be a source of ‘temporary’ stimulus funds. The idea that its payroll tax rate should be moved up and down with economic events is highly dangerous to the program’s financial future.

"If Congress continues to cut the program’s funding source, one of two things must happen: 1) Social Security’s insolvency will be accelerated; or 2) Social Security will have to increasingly rely on general revenues (i.e., income taxes) to pay beneficiaries.”

Read Social Security Payroll Tax Cut -- A Temporary Stimulus With Permanent Damage by Charles Blahous.