The real threat to Social Security

It’s the payroll tax, stupid:

At the end of August, Nebraska senator Ben Nelson, a Democrat up for reelection next year, told members of the Lincoln Rotary Club that it didn’t look like he would support an extension of the payroll tax holiday the president negotiated with Republicans last Christmas. “I wish I could (support it),” he said. “But all you’re doing is taking money that otherwise would help Medicare and Social Security.” There’s nothing remarkable about politicians talking to Rotarians, but it was remarkable for a conservative Democrat to say he didn’t think extending the Obama payroll tax cuts was such a hot idea. On Friday, Texas GOP congressman Pete Sessions, who chairs an organization to re-elect House Republicans, did likewise by calling the payroll tax cut “a horrible idea.” Instead of delving into why a conservative Democrat and a diehard Republican are pooh-pooing the president’s plan for bringing less revenue into the Social Security system, the media of late have fixated on the disparaging comments presidential candidates, in particular Rick Perry, have made about Social Security. At the Republican candidates’ debate last week, Perry once again called Social Security a Ponzi scheme and a monstrous lie. Said Perry:

I think the Republican candidates are talking about ways to transition this program. And it is a monstrous lie. It is a Ponzi scheme to tell our kids that are twenty-five or thirty years today: ‘You’re paying into a program that’s not going to be there.’ Anybody that’s for the status quo with Social Security today is involved with a monstrous lie to our kids, and it’s not right.

Perry was basically repeating what he had said before in Iowa, and it looks like he will stay on message as long as he remains a candidate. It will be up to the media to explain the difference between Social Security, which is social insurance where people pay taxes and accumulate credits and then receive a pension backed by substantial political commitment and trillions of dollars in financial reserves, and a Ponzi scheme, which is a criminal fraud backed by nothing, as Brookings Senior Fellow Henry Aaron puts it.

What’s missing are stories explaining, as Nelson tried to do, that there could be long-term consequences tied to reducing the payroll tax. “The Ponzi scheme is a sideshow. It’s an outrageous claim designed to undermine confidence in the program,” says Nancy Altman, co-director of Strengthen Social Security, a progressive group trying to save the program. Altman knows her onions when it comes to Social Security, having assisted Alan Greenspan, who headed a bipartisan commission in 1983 that put Social Security on a sound financing footing. Altman wasn’t keen on the payroll tax holiday agreed to last December, telling NPR that this “could eventually lead to the unraveling of Social Security.” If Republicans make this permanent, it could spell real trouble for Social Security, she said.

I asked Altman if she had changed her mind. Nope, she hadn’t, and discussed the red flags that the public and the press should think about as another payroll tax cut zooms through Congress. The payroll tax cut now in effect reduced the amount of contributions employees pay from 6.2 percent to 4.2 percent, and left in place employers’ contributions, also 6.2 percent. This time around the president is proposing that workers pay a payroll tax of only 3.1 percent—a fifty percent reduction from the 6.2 percent rate that has been in effect for two decades. Employers would also be relieved of making payroll contributions on the first $5 million of their payroll, a move targeted at small employers.

Altman says these cuts would not be a big deal if they were temporary, but she believes they’ll stick around. “Congress has been reluctant to increase marginal tax rates by a modest amount on the very wealthiest Americans; it’s hard to believe they would be eager to allow Social Security contributions to double on the lowest-income, working Americans,” she said.

The December deal was designed to keep revenues to Social Security exactly where they would have been by replacing the lost payroll contributions with general revenues. The legislation provided a dollar for dollar replacement for the lost contributions to Social Security. In other words, the program would be protected, and presumably that would be the case now. However, Altman notes that this benign solution is perilous in the long term. Through the years Social Security has been immune from successful attacks by groups and individuals who have never liked the system. That’s because of the link between what people have contributed through payroll taxes and the fact the program’s funds have been separate from general revenues.

If the government must dip into general revenues permanently to make the trust funds whole, then Social Security will contribute to the deficit, and may be in jeopardy, since the government has to borrow money to cover its debt. Right now Social Security does not contribute to the deficit, a point the president himself has made. “Too many Americans believe that their elected representatives have been stealing from Social Security,” said Altman. “This reinforces that perception. These are pension funds, not general taxes, and should not be cut to stimulate the economy or used for any purpose other than Social Security.”

She argues that there are better and more effective ways to stimulate the economy, like a one-time increase in food stamp payments, or an income tax break like the now-expired “Making Work Pay” tax credit part of the stimulus package that put more money into the pockets of working Americans. The press has barely explored these options. Nor has it made the connections between the arguments of Altman and others to the arguments of politicians, like Perry, that Social Security is destined to disappear. Obama’s plan to cut the payroll tax may accomplish exactly what Perry wishes for, and just might fulfill his predictions that Social Security won’t be there for today’s thirty-somethings.

A couple days ago, a retired cabinet manufacturer in Wisconsin learned that the proposed payroll tax cut could later impact Social Security. He responded that could not possibly be correct, because Obama was considering an income tax reduction. He had confused income taxes with payroll taxes, and had no idea that payroll taxes, called FICA for Federal Insurance Contributions Act, had financed his Social Security benefits. When it was explained that the payroll tax refers to his contributions to Social Security, and they were on the chopping block, he replied: “He’s trying to kill Social Security.”

5 thoughts on “The real threat to Social Security

  1. I had not known (still have a question about it) that cutting the payroll tax even temporarily could have an effect of what a person receives as regular SocSec.

    That’s serious shit — and no one told us anything about that? I seem to recall that even the lefty economists said the payroll tax cut was a good thing in that it provided at least a bit more stimulus and that of course the lost revenue would be made up….

    What is really happening here? Is this another move by Obama et al to screw up SocSec and Medicare????

    From the end of Susie’s post:

    A couple days ago, a retired cabinet manufacturer in Wisconsin learned that the proposed payroll tax cut could later impact Social Security. He responded that could not possibly be correct, because Obama was considering an income tax reduction. He had confused income taxes with payroll taxes, and had no idea that payroll taxes, called FICA for Federal Insurance Contributions Act, had financed his Social Security benefits. When it was explained that the payroll tax refers to his contributions to Social Security, and they were on the chopping block, he replied: “He’s trying to kill Social Security.”

    This is the second place I’ve seen this referenced and had actually thought the first reference was inaccurate…so, whassup?

  2. Back when the payroll tax “holiday” was created last year, the Republicans said that they would not allow the tax to be restored to its former level because it would be a “tax increase”.

    I was remembering yesterday that under G.W. Bush we got the Medicare drug benefit (which has been a life saver) and two $400 economic stimulus checks with this I bought this laptop computer and a bicycle. Under Mr Obama I got some kind of invisible tax credits and a threat to my Social Security and Medicare. I was doing better under Bush.

  3. I keep boggling about why, *why?*, Obama wants to trash Social Security. What’s in it for him?

    As Riverdaughter pointed out over at The Confluence, if it was just about using retirement money for immediate temporary stimulus, he could also declare a moratorium on charging the 10% penalty for early withdrawals from 401k plans.

    But doing that would pull money out of the market, which would lead to headline lower Dow numbers, which wouldn’t help paper over the recession/depression that’s rolling along.

    However, when Bush floated the idea of privating SS, Wall Street went wild. (I don’t remember exactly, but for a day or two the Dow shot up some 600 points, until it became pretty clear it wasn’t going to pan out.) Wall Street would go nuts if they thought they were going to get their hands on even some of those trillions.

    So, is it too crazy to think that a scenario is being set up in which SS is starved, the “obvious” solution is to let market magic “help out,” Wall St. rockets for a few months in mid- to late-2012, and that affects all sorts of economic feelings and indicators. And that, purely by coincidence, helps someone’s re-election chances. (I’m talking about expectations and rumors, not actual legislation, so a timeframe of months is not out of the question. But after expections have been goosed, the actual legislation might well follow.)

    Would any politician, even Obama, gamble the future of millions of people for a mess of one-time re-election pottage? It seems so criminal I can’t really believe it, but it’s the only angle I’ve been able to think of that provides any pay-off to anyone from the massive cock-up.

  4. This has been a big burr under my saddle since O! told it to everybody at The Peoples House (and the thuglicans raced to their feet). I WANT to PAY that measly 2% toward my FICA! And since my gainful employment I’m not the employer AND employee and now get those MATCHING FUNDS @ 6.2% still (oh the charity of your employer!).

    So, how to VOLUNTARILY CONTRIBUTE, effectively OPTING OUT of the FICA bullshit “tax” break?
    I sent this missive to Ohio Senators Sherrod Brown AND Rob Portman (changed a bit for the guy gwb chose for ambassadorship that led to the Mean Jean vs. Paul Hackett stolen debacle for OH2 in the summer of 2005 – and she’s been there since!)
    Hello Senator Brown!
    I trust you and your family are well. I’m writing to you today to find out more about the so-called 2% “tax holiday” Obama & Congress passed that reduced the FICA amount people pay towards their Social Security and are now thinking of reducing to 3.1% HALF of the standard 6.2%. It’s NOT a TAX but more of a retirement INVESTMENT. Obama extended NOT taxing the uber-wealthy by NOT letting the “Bush Tax Cuts” expire and replaced this with workers not paying that 2% into their OWN retirement fund. For someone making $50K/yr this works out to about $20/week; if you make LESS than that their “tax break” is obviously less too. This so-called “economic boost” will hardly affect most peoples’ bottom line for food, housing and energy expenses as many are trying to pay down debt as well. Please read this: “The real threat to Social Security” https://susiemadrak.com/?p=24871. What I want to know is, How can I VOLUNTARILY contribute this missing 2% toward MY SS account? I want to sock away this money NOW and opt out of the 2% “tax releif” because it’s NOT a tax! It’s MY RETIREMENT MONEY! Please do something to STOP the attacks on Social Security and repeal this bogus ploy, replacing it with higher tax on the Top 5% and increasing the limit that FICA is applied to. Even the GAO explains that a modest increase in this limit will make Social Security whole; every other proposal is a con. Please find out how I can make direct contributions to my SS account to replace the 2% that isn’t being deducted out of my paycheck. Then propose an “opt in/opt out” so other workers can make this decision also.

    From the above-cited article: “The Ponzi scheme is a sideshow. It’s an outrageous claim designed to undermine confidence in the program,” says Nancy Altman, co-director of Strengthen Social Security…telling NPR that this “could eventually lead to the unraveling of Social Security.” If Republicans make this permanent, it could spell real trouble for Social Security, she said.

    This should be your Number One Priority, Senator Brown. Get the word out, talk to Bernie Sanders, whip up the Caucus and STOP the raiding of SS and the disinformation being spread!

    I look forward to hearing from you soon on this very important live-or-die issue.
    I wait with baited breath to receive a response from both.
    Which I will post in entirety here.
    If I get one.
    Please feel free to comp as much as you want when you compose your own letter. Or just copy-paste.
    Can we start a public petition? How about Susie? Just FLOOD this thread with comments!
    Waddya say?
    .
    imbillorightsmanandiapprovethismessage in CLE OH

Comments are closed.