Social Security and Payroll Tax Cuts

The reduction of payroll taxes in the tax cut deal negotiated between President Obama and the Republican Party in December could jeopardize the sustainability of the Social Security tax fund.

Projections indicate that the Social Security fund will be able to pay all benefits through 2037. If, after that time the Social Security benefits paid out to recipients is reduced, the fund will still be viable for the next 50 years. That’s because the Social Security Fund continuously receives new money through payroll taxes. It was set up this way.

If, however, a change was made to payroll taxes, that change would interfere with the money that was replenishing the fund, bring the length of sustainability down substantially.

In 1941 Franklin D. Roosevelt told a Treasury official, “We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”

The Democratic Party has never before allowed payroll taxes to be cut because of their impact on the stability of Social Security. Once taxes have been cut, elimination of the cut is seen as an increase, and it’s difficult to find support for tax increases. This would mean that the Social Security program would be in jeopardy.

There is a lot of agreement to that way of thinking, and statements from key Republicans seem to indicate that this step is an opening to reduce Social Security benefits, which is what the Democrats have been accusing them of for years.

“There’s always a tendency to continue those things. Once something comes in, it’s very difficult to change it,” said Republican Ohio Sen. George Voinovich. He added that “It would be detrimental to the Social Security system, especially when it’s in bad shape.”

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