POLITICS

AARP Wants Congress To End Social Security Payroll Tax Holiday

10/18/2012 12:42 pm ET | Updated Oct 18, 2012

One of the most powerful lobbying forces in Washington on Thursday urged Congress not to continue a payroll tax cut next year.

AARP, the seniors advocacy group, wrote in a letter to Congress that preserving a 2 percent break in the Social Security payroll tax paid by all U.S. workers would hurt the Social Security program. Congress gave workers the payroll tax break at the end of 2010 in hopes that slightly larger paychecks would stimulate the economy. The cut is set to expire at the end of December.

"When Congress and the President originally enacted and then extended the temporary payroll tax holiday, AARP recognized and appreciated that economic conditions had been devastating for millions of Americans and that there was a need for short-term action," AARP CEO A. Barry Rand said in his letter to lawmakers. "In addition, our position on the temporary payroll holiday was contingent on several conditions in order to protect Social Security and its beneficiaries in both the short and long-term."

AARP and some members of Congress worried all along that lowering the payroll tax would weaken Social Security, even though the deal required the government to make up the Social Security trust fund's depleted payroll revenue with general revenue.

Nevertheless, AARP has worried that reducing the tax would weaken workers' sense that the retirement benefit they eventually receive from Social Security is the same money they earned during their working lives.

"Further extension of the payroll tax holiday would undermine confidence in Social Security and put at risk the program’s dedicated funding stream and the hard-earned benefits of millions of Americans and their families," Rand said, adding that the economy is recovering enough that it can probably get by with Americans receiving 2 percent less in take-home pay.

Social Security benefits support more than 61 million Americans, including 40 million aged 65 and up. The average monthly benefit for seniors is $1,235, according to the Social Security Administration. The program kept more than 14 million seniors out of poverty in 2011.

Social Security's trust fund is supported by a 6.2 percent dedicated tax paid by both workers and employers on the first $110,000 in earnings. For the past two years, workers have paid 4.2 percent. The reserves are set to run dry in 2033, at which point incoming revenue is enough to cover 75 percent of benefits. Lawmakers are mulling benefit cuts to help close the gap.

AARP said earlier this year that the tax cut shouldn't last.

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