One of the most important provisions of the great 2010 tax cut compromise is getting almost no attention. The cut in payroll taxes threatens to undermine Social Security. Why? Because, as YES! managing editor Doug Pibel explains, even if a tax cut is labeled temporary, letting it return to its former level is labeled a "tax increase." In our fractured political climate, restoring the flow of funds that keeps Social Security solvent will be difficult if not impossible.
So the biggest change represented by the tax compromise may be the one least discussed. You can read Doug Pibel's explanation in YES!, or read an excerpt below:
Whether or not the tax holiday makes economic sense, it represents an enormous change--and threat--to Social Security. There has never before been a payment from the nation's general fund into Social Security. Maintaining the distinction between the two is critical, according to Nancy Altman, co-director of Social Security Works, speaking in the same press conference. Altman's credentials include acting as Alan Greenspan's assistant when he chaired the commission that amended Social Security in 1983. "I think it's unfathomable that this is only going to last a year," Altman said. "If this gets extended, we'll have increasing costs. Congress will then have an unpalatable set of choices: Either extend funding and cut other spending, or cut Social Security."
It's ironic that this is being sold as a temporary cut in the context of extending the Bush administration's supposedly temporary tax cuts. In fact, Republican legislators have already announced that, when it comes time for the payroll tax holiday to expire, they'll be calling it a tax increase, and fighting to extend the decrease.
There's even a great way to make it seem like a really scary increase: The tax holiday will take the worker's share of payroll taxes from 6.2 percent to 4.2 percent, a 2 percent decrease. But when comes time for the holiday to end, it's going to be called a 50 percent increase. That's mathematically correct, since two is about half of 4.2. But that sounds much worse than an increase of two percentage points.
Not to mention that, as we've learned from the extension of the Bush tax cuts, there's no traction for the argument that letting a tax cut expire is just a return to the status quo. "It's easy to enact tax cuts, and very hard to turn them around," said Barbara Kennelly, President and CEO of the National Committee to Preserve Social Security and Medicare.
"There's no reason to do it this way other than as an assault on Social Security," Kennelly said.
- "Let Our Tax Cuts Go" :: Why some wealthy Americans aren't happy to see their tax cuts continued.
- "5 Ways to Stand Up for Fairer Taxes" :: How can we protect public services while stopping the 'Great Tax Shift' from corporations and the wealthy to the middle class and small businesses?
Sarah van Gelder is co-founder and executive editor of YES! Magazine, an independent media organization that fuses powerful ideas with practical actions for a just and sustainable world.