President Obama should be commended for fighting to include additional tax cuts for working Americans during negotiations with congressional Republicans over the approaching expiration of the Bush tax cuts. Giving struggling American families extra spending money will provide our economy with a desperately needed boost.
Yet, one method by which the compromise tax bill provides American workers with $120 billion in tax relief reveals an ulterior motive on the part of Republican negotiators. Instead of spending that money on either a direct, one-time refund to the middle class or a refundable tax credit twice the size of the expiring Making Work Pay initiative, the plan enacts a temporary 2-percent reduction in employee contributions to Social Security.
If we picture ourselves one year from now, it is easy to see why Republicans are enthusiastic about a payroll tax cut from 6.2 percent to 4.2 percent. The debate over the expiration of the Bush tax cuts has illustrated that taxes are easy to cut but hard to restore. So, one year of reduced employee contributions to Social Security could easily become two years, and some will surely argue they should even be made permanent.
The payroll tax has served as Social Security's independent revenue stream, preventing it from contributing to the budget deficit. To make up for lost revenue, this plan requires Social Security to be replenished with general funding, or in other words, deficit spending. The payroll tax has also protected the hard-earned retirement benefits of American workers from the red pen of those determined to dismantle this vital program. Under this plan, a large part of Social Security revenues could ultimately be subject to the discretion of Republican leaders who support diverting it to the stock market or cutting benefits. Worse, if the reduced payroll tax were made permanent, Social Security's long-range funding gap would more than double, converting a modest shortfall decades away into a crisis right around the corner.
Maintaining a permanent lower rate would require the general budget to provide Social Security with a growing amount of revenue at a time when the focus of Congress will be squarely on cutting spending. Congress would then face the unpalatable option of choosing between veterans benefits, defense programs, and children's nutrition, or starting to dismantle the only pillar of economic security relied on by millions of American retirees.
Democrats concerned about a payroll tax cut are not, as some have suggested, engaged in fear-mongering. If anything, we fear that the White House, with its laser-like focus on the critical task of providing middle-class families with tax relief and protecting benefits for unemployed workers, may have unintentionally overlooked this threat to Social Security. This November, Americans did not vote to dismantle Social Security. We cannot ignore the fact that in poll after poll, workers have reaffirmed their willingness to contribute to Social Security in exchange for some basic security at retirement or in the event of a disabling injury or illness.
Congress can help struggling families, boost consumer demand and encourage job creation by enacting tax cuts that have the added bonus of preventing an unprecedented threat to Social Security. A refundable tax credit or singular payment of $800 for individuals and $1,600 for families would actually put more money in the pockets of people who need it most. This viable alternative shares the same price tag as the proposed payroll tax cut and should garner bipartisan support.
Social Security is a promise kept between retirees of today and retirees of tomorrow. It provides two-thirds of retirees with over half their income, lifts 20 million Americans out of poverty, and enjoys overwhelming support from the American people. However, since its enactment there has been a small minority of dissenters gunning to dismantle it. The work of previous Congresses to protect Social Security from budgetary attacks has frustrated those efforts. Even as Congress rushes to deliver middle class tax relief, it is imperative that we get this compromise right.
It would be a real shame if shortsightedness on the part of today's leaders neglected the wisdom of the past and undid a promise that has spanned generations of Americans.
This piece was originally published by the Miami Herald here.