In an effort to stimulate the economy, President Obama has once again called for an extension of the Social Security payroll tax cut, which was enacted in December of last year.
The tax cut, which reduced the Social Security payroll tax for employees from 6.2 percent to 4.2 percent, makes the Social Security trust funds reliant on general revenues and undermines the self-funding nature of the program. Social Security is funded by payroll taxes, and currently faces a $49 billion cash-flow deficit. Extending the tax cut could exacerbate the program’s funding issues.
In addition, The Senior Citizens League (TSCL) believes that an extension of the tax holiday could make a permanent cut more likely, further jeopardizing the program’s ability to fully pay Social Security benefits in the future.
On August 15th, President Obama went on the record saying, “We should extend the payroll tax cut as soon as possible, so that workers have more money in their paychecks next year and businesses have more customers next year.”
Some agree with the President’s stimulative plans, however, many on Capitol Hill have aggressively opposed the extension. House Budget Chair Paul Ryan (WI) has been particularly outspoken about the tax holiday, referring to it as “sugar-high economics,” and preferring instead a plan that includes comprehensive tax overhaul.
At this point, the future of the Social Security tax holiday is unclear, though some believe it may resurface later this year as the Joint Select Committee on Deficit Reduction takes up the challenge of reducing the deficit by at least $1.2 trillion before Thanksgiving.
TSCL will continue to monitor this debate, and will work to educate Members of Congress about the potential for problems in funding benefits that could result from extending the payroll tax holiday. In the meantime, TSCL is also asking seniors to contact their Members of Congress and urge them to oppose extending the Social Security payroll tax cut.