Payroll Tax Cut May Not Be Extended Again
Senate Democrats are growing concerned about how many extensions the Social Security payroll tax cut has already received and are leaning towards not extending it again when it runs out. From The Hill:
“We’re running into this problem. The critics said, ‘You’ll never get rid of it. It’s going to ultimately jeopardize the Social Security trust fund; the general revenue fund can’t continue to subsidize it.’ And we said, ‘No, it’s going to come to an end,’ ” said Senate Democratic Whip Dick Durbin (Ill.).
“In terms of whether we need more stimulus in our economy, I think we do. But in terms of using this against the Social Security trust fund, I think for credibility we have to keep our word,” he added.
It is easy to understand both sides of this issue. The economy is still weak and could use more stimulus, but that needs to be balanced with long term concerns about what this cut is doing to Social Security. While the lost revenue has technically been made up by the general revenue fund, if we have three or more years of people not paying the full payroll tax we seriously risk creating a new norm.
After keeping the rate artificially low for too long it becomes politically difficult to reverse and it feeds a host of narratives put forward by people who want to undermine the program. It also creates an opening for enemies of the program to push for bad “reforms” like using that 2 percent to instead create private accounts while cutting direct Social Security benefits.
I personally think the possible long term damage to the program is by far the greater of the two concerns and prefer the cut ends.
The fact that this dilemma even exists, though, shows what a terrible move it was for President Obama and Democrats to use a payroll tax cut for stimulus. If they had instead gone with a tax credit or regular tax cut, deciding whether or not to extended it in the face of a bad economy would be much easier. There was no need to possibly jeopardize one of Americas most successful government programs.