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AARP Signs Off On Obama Tax Cut Provision

First Posted: 12/10/10 07:56 PM ET Updated: 05/25/11 07:20 PM ET

Aarp Obama Tax Cut Deal

WASHINGTON -- The country's foremost senior-issues advocacy organization on Friday night lent its support to a critical provision of the president's tax cut deal with Republicans.

In what could prove to be a consequential assessment of "the framework," AARP's Executive Vice President John Rother says that both he and his organization have determined that a two percentage point reduction in the payroll tax rate (from which Social Security gets its revenue) would not endanger the solvency of their community's cherished program.

Critics of the tax cut deal have raised concerns that the even though the holiday is structured to be in place for just one year, lawmakers would feel compelled to extend the policy well beyond that, in the process endangering Social Security's finances.

Mother Jones called the provision a "Trojan Horse for Republicans."

"After all, won't they just come back a year from now and start screaming that if the cut is allowed to expire it's a tax increase?" wrote Kevin Drum.

The Obama administration has insisted that during that one-year holiday, Social Security revenue would be, essentially, firewalled. A fact sheet the White House has sent to the Hill (a sign, perhaps, that the president's team is worried about a backlash against this specific proposal) declares that: "The law specifies that Social Security will receive every dollar it would have gotten even without the payroll tax cut... the Social Security Trust Fund will be paid back for every dollar lost because of the payroll tax cut."

In speaking to The Huffington Post, Rother said that he had faith in the administration's calculus.

"It is obvious that the proposal has no financial impact on Social Security because the trust fund is made whole," he said. "So there is no dollar or cents impact but secondly some people may be worried that once you cut the payroll tax it won't go back up. I think that is a misplaced concern because if there is one program the public wants funded it is Social Security... We have all kinds of public opinion data that shows people would rather pay taxes for Social Security than see benefits get cut."

The notion that public opinion polls would compel Congress to allow a tax break to expire may seem -- as evidenced by the larger debate over the expiring Bush tax cuts -- a bit far-fetched. And at one point Rother seemed to acknowledge that there could be a revenue-juggling problem if lawmakers kept extending the payroll tax holiday down the road. But even then he was rather nonplussed.

"Social Security is, of course, a stronger system with a dedicated source of financing but in theory you could take money from anywhere to keep financing going," he said.
"Other countries do that. But we have a long tradition in this country of keeping Social Security self-financed.

"Everyone involved is quite clear that this is a temporary payroll tax holiday and given the deficit and the politics I have no doubt that that will be true. That in other words we will go back to the traditional way of contributing to Social Security once this period is finished."

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