Oops? Obama’s Tax Compromise Might Kill Social Security

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Co-Director of Social Security Works Nancy Altman explains:

President Obama and the Republicans will say that the payroll tax holiday is all about stimulating the economy. But don’t be fooled. According to the Center for Budget and Policy Priorities, extending the Making Work Pay Tax Credit, is a much better, more targeted stimulus. See “Payroll Tax Holiday a Poor Stimulus Idea,” available at this link.

Sixty members of the Senate are unwilling to raise taxes by 3 percent on the $250,000 and first dollar (and all those dollars earned above $250.001) of those making over $250,000 and by 1.6 percent more (for a total of 4.6 percent) on the $384,860 and first dollar {and all those dollars earned above $384,861) of those making over $384,860. They are even unwilling to spare everyone making less that one million dollars any increased taxes and simply raise taxes by 4.6 percent on the $1 million and first dollar (and all those dollars earned above $1,000,001 of the nation’s multimillionaires and billionaires).

Given that unwillingness to raise taxes by less than a nickel on every dollar earned over $1 million, I find it unfathomable that a more conservative Congress, in two years, in an election year, will increase the payroll tax by 2 percent on the very first dollar, and every other dollar up to the cap, earned by virtually every single worker in the country. Consequently, I think we have to assume that the payroll tax holiday will be extended beyond the two years the president is proposing and quite likely could become permanent.

Emphasis mine, and it deserves emphasis because a permanent 2% cut in the payroll tax will DOUBLE the 75-year projected shortfall in Social Security and make it impossible to restore Social Security’s solvency by just lifting the cap on eligible income for the payroll tax and having the rich pay the same overall rate as everyone else. We’ll have to cut benefits, or indefinitely supplement social security out of general revenue, where it will expand the Federal budget deficit and/or compete with defense, education, healthcare, and all our other normal spending.

Good luck finding the political will to make that sustainable.