Our view: Payroll taxes raid Social Security

Discussion in 'Media' started by hvactec, Sep 18, 2011.

  1. hvactec
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    hvactec VIP Member

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    For almost three decades, Social Security was the only major government benefit program that generated more money than it cost, thanks to hefty payroll tax revenue that exceeded benefit payments to seniors. This surplus was so tempting to spendthrift lawmakers that, in the 2000 presidential race, Al Gore famously proposed protecting it in a "lockbox."

    These days, not only has the lockbox been raided, but money is being diverted before it even gets there. As a result, Social Security is increasingly dependent on the destructive borrowing that's pushing the national debt to dangerous levels.

    OPPOSING VIEW: Payroll tax cuts ease jobs crisis

    This year and next, Social Security will pay out $187 billion more than it takes in, according to figures from the Congressional Budget Office. The gap is being made up by transferring money from the rest of the government, which is borrowing $4 for every $10 it spends. And budget negotiators in Washington might be about to make the problem even worse.

    It was bad enough last December when President Obama and Republican congressional leaders agreed to cut 2 percentage points from the 6.2% payroll tax on employees to stimulate the economy, promising that it was for just one year.

    These days, of course, tax cuts that are supposed to phase out somehow never do, largely because it has become GOP dogma that there is never an appropriate time to raise any tax. Witness this week's battle over getting rid of the indefensible subsidy for corn-based ethanol: Hard-liners portrayed even that as a tax increase, and the GOP senators who voted to end the subsidy were accused of violating their pledge never to raise taxes.

    So once the payroll tax got cut, the chances of restoring it were always going to be dicey, particularly ahead of an election year. And, sure enough, that's how things are playing out.

    USA TODAY OPINION

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    Larry Summers, former chief economic adviser to the Obama administration and now a Harvard professor, argued in a widely published opinion piece on Sunday that the payroll tax cut should not just be extended next year; it should be raised to 3 percentage points from 2 and extended to employers as well as employees. That would take away about half the revenue dedicated to paying Social Security benefits (6 percentage points of the combined 12.4% payroll tax paid by workers and their employers).

    Summers' $200 billion proposal was followed by reports that the Obama administration has been floating the idea of extending, and perhaps even expanding, the payroll tax cut as part of the budget talks aimed at finding a way to raise the debt limit.

    The argument for cutting the payroll tax in the first place — and Summers' argument now — is that the fragile economy still needs stimulus, and boosting take-home pay for virtually all working Americans is an effective way to do it.

    Don't be fooled. What is billed as a stimulative cut in payroll taxes is really budgetary malpractice on the order of diverting money that's supposed to go into your 401(k) account, or your kid's 529 college savings plan, to pay for current expenses.

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  2. Moonglow
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