Sounding the Alarms on Another Social Security Tax Cut

By Daniel Marans

Created 06/09/2011 - 2:22pm

The White House is considering adopting a temporary Social Security tax cut on employers to stimulate the economy as part of the debt ceiling negotiations with the Republicans, according to a Bloomberg News article [1].

If the Administration so much as puts another Social Security tax cut on the table, they will be throwing Social Security under the bus for uncertain—indeed, unlikely—economic gain.

It seems like déjà vu. Wasn’t it just last year that progressives had to talk themselves blue in the face explaining the harm that a temporary payroll tax cut would do?

In case you hadn’t heard, the Obama Administration already enacted a one-year 2 percent payroll tax cut on the employee side as part of the tax cut deal with Republicans in December 2010. The revenue that Social Security would have gotten from the missing 2 percent of taxable payroll is being replaced by a one-time transfer of $105.2 billion from the general fund. (Click here [2] for more on how Social Security is funded.)

At the time, the payroll tax cut was criticized by progressives for endangering Social Security’s finances and undermining the program's political underpinnings. A critique [3] made by Nancy J. Altman, a nationally renowned Social Security expert and co-chair of the Strengthen Social Security Campaign, still offers the best explanation for why a payroll tax cut is disastrous.