Chipping away at Social Security

I don’t think you need reminding that Obama is no protector of Social Security. From Trudy Lieberman at the Columbia Journalism Review:

Last week, Congress voted to extend the payroll tax holiday through the end of 2012. Social Security supporters have argued that a tax holiday may not be such a hot idea, and could jeopardize the program’s future by changing its revenue stream and eventually making it compete with other programs for general revenues. Alarm bells rang at the end of 2010 when the Obama administration managed to cajole Congress into cutting the payroll tax for one year in order to channel a few more dollars into workers’ pocketbooks. When advocate Nancy Altman argued in an interview with NPR that once tax cuts are in place, they are hard to repeal, she sounded like Moses in the wilderness. The press was busy portraying the tax cut as a welcome Christmas gift from the president.

The tax holiday expired in December, and Congress agreed to a two-month extension, which will now last until the end of the year. This time, the press expanded its coverage and reported that politicians of all stripes wondered if such a move was wise. TheNewsHour’s Judy Woodruff asked House Minority Leader Nancy Pelosi if she was worried that the money taken from Social Security by reduced payroll contributions might never be fully repaid. “No, I don’t worry about that,” she replied. “I think that this should be the last year for it. One or two years, no, the trust fund can handle that.”

Other outlets reported that not all Democrats were on board with the extension. On the Senate floor, Iowa Democrat Tom Harkin was blunt:

I never thought I would live to see the day when a Democratic president and a Democratic vice president would agree to put Social Security in this kind of jeopardy. Never did I imagine a Democratic president beginning the unraveling of Social Security.

Later Harkin said: “It’s the devil’s deal. It’s a bad deal.”

Opposition also came from the other side of the aisle. Jeff Fortenberry, a Republican congressman from Nebraska, voiced similar concerns. Said Fortenberry: “They are framing it as a middle-class tax cut even though this is a significant change to how Social Security has traditionally been treated. The payroll tax keeps Americans attentive to the fact that they put a little bit aside each check for Social Security. That connection is now gone.”

It isn’t gone yet, but commentators on both sides are raising the possibility that the tax holiday may eventually break the historical link between payroll tax contributions and workers’ rights to a benefit in old age. They are, in effect, asking whether the payroll tax holiday is actually a middle class class tax cut, as claimed by the Dems, or the destruction of workers’ retirement security, as suggested by the GOP.

Jeffrey Brown, who served as a senior economist for President George W. Bush’s Council of Economic Advisors and who traveled with the Bush White House campaign when it was promoting Social Security privatization in 2005, wondered on the Forbes site if “maybe President Obama really is the Damn Politician that FDR was worried about.” Brown was referring to FDR’s famous comment from 1941: “We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my Social Security program.”

Brown argued that Obama’s “budget gimmick” of shifting money from general revenue to pay for the lost payroll tax income makes it seem like the trust funds are “unaffected by this tax cut.” In the long run, he said, “this has the potential to erode political support for the program,” which “starts to look more like a welfare program than a contributory social insurance program.”

One thought on “Chipping away at Social Security

  1. Extending the payroll tax cut is not a real solution nor does it help sustain Social Security. There are a number of other options for making Social Security a sustainable program and for reducing the deficit. Progressive price indexing would substantially reduce the long-run funding gap to $3.2 trillion from the current law funding gap of $16.1 trillion. Thus, it would only require a modest solvency tax increase equal to 0.6% of taxable payroll. In terms of long-run spending, it would result in the second smallest program, about 82 percent of the size of the current program. Also, changing the benefit formula for SS would essentially eliminate the long-run funding gap and require no additional solvency tax. It also would produce the most dramatic reduction in spending on benefits, equal to 23% of long-run spending under the current benefit formula. In addition, it would retain the progressive nature of the benefit formula, but reduces the degree of progressivity relative to the current formula. Furthermore, raising the retirement age would reduce Social Security’s unfunded obligations for retiree benefits to $6.3 trillion and require a solvency tax of 1.3% of taxable payroll. It would result in the third-largest program, with about 87% of the current law spending. Moreover, though the distribution of net taxes would still be progressive, of the four potential changes considered it would reduce the degree of progressivity the most relative to current law. Finally, eliminating the taxable maximum would reduce Social Security’s unfunded obligation for retiree benefits to $8.3 trillion and require a 1.3% payroll tax increase. It would result in the largest program in terms of long-run spending, and would increase the progressivity of the program (

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