Democrats and Republicans in Congress fought until the last days of 2011, but they ultimately decided to renew the payroll tax cut for 160 million workers. The only problem is that they renewed it for just two months. On February 29 of this leap year, the tax cuts are set to expire. As a result, members of Congress are at it again to extend the cuts through for all of 2012.
Cuts for the rest of 2012, though, mean that Congress needs to find $160 million to make up for the lost revenue that the cuts cause for government coffers. While Social Security benefits have generally been off limits from budget cuts in past discussions, extended payroll cuts lessen Social Security’s status as largely self-funded, forcing Social Security to draw funds from other sources.
By self-funded, we mean that Social Security has never had to borrow money from outside its own program. Many Social Security beneficiaries are receiving back money that they already paid into the system through their years of work. Almost all Social Security benefits – retirement, survivors and disability, for example – require a work history. The longer you have worked, the larger the amount of benefits you are eligible to receive.
When there was not a payroll tax cut, you pay 7.65 percent of your gross income in Social Security taxes, and your employer pays another 7.65 percent. These taxes combined with the taxes some beneficiaries pay on their benefits make up all of Social Security’s funding. 80 percent of it comes from the payroll taxes; about 15 percent comes from the Social Security Administration’s investment of the money from payroll taxes; and the remaining amount comes from taxes on Social Security benefits that some beneficiaries have to pay. Social Security benefits, therefore, are far from being a drag on the federal budget, since the program has always been self-funded, at least for now.
Do you receive Social Security benefits of some sort? Are the payroll tax cuts worth their threat to future benefits? Or do you find the cuts worthwhile in the short term?
Troutman & Troutman, P.C. – Tulsa Social Security disability attorneys