THE PAYROLL TAX CUT: Talk about a Ponzi Scheme!

Is President Obama trying to kill Social Security without explicitly saying so?  He put Social Security "on the table" for consideration by his Deficit Commission -- even though Social Security has not contributed to creating or sustaining the deficit/debt in the first place.  He kept Social Security on the table when he made a deal to delegate deficit reduction authority over entitlements to an undemocratic Super Committee.  Now, in a speech reportedly about jobs, he proposed to extend and increase the ill-considered FICA tax cut he embraced last December -- a tax cut that directly undermines the financial integrity of Social Security.

According to the White House Fact Sheet on "The American Jobs Act" (http://www.whitehouse.gov/the-press-office/2011/09/08/fact-sheet-american-jobs-act) the FICA tax holiday for workers will be increased to a 50% reduction, lowering it to 3.1%.  Under the 2010 tax deal, the payroll tax for workers was reduced from 6.2% to 4.2%.  In addition to expanding the tax cut for workers, the President proposes to extend the FICA tax holiday to employers by cutting in half the employer's share of the payroll tax through the first $5 million in payroll. 

Big questions about the wisdom, efficacy, and implications of a tax-based jobs strategy need to be debated.  Even bigger questions about the consequences of the payroll tax holiday in particular need to be answered.  These questions are not just about the relationship between payroll tax cuts and job growth.  They are about the future of Social Security.

The FICA/payroll tax goes into the Social Security Trust Fund.  This is a dedicated fund currently worth $2.6 trillion, which has been built up over time through employee and employer contributions, along with accrued interest.  Current and future Social Security beneficiaries receive benefits from this fund.  No general revenues are involved.

Under the payroll tax cut initiated in the 2010 lame duck tax deal, the revenue loss to the Trust Fund from the payroll tax holiday is made up through compensatory payments into the Trust Fund from general revenues. The President proposes to continue this scheme -- deepening a relationship between Social Security and general revenues (read deficit) that did not exist until the December 2010 tax deal.  This will make Social Security increasingly vulnerable to demands for "reform."

In the worst case, Congress could choose to enact the payroll tax cut without actually appropriating revenue compensation for the Trust Fund.  This would mean that the payroll tax cut directly depletes the Trust Fund, creating financial/actuarial problems far sooner than the currently anticipated shortfall date of 2036.

But even if the Trust Fund receives full revenue compensation -- for both employer and employee contributions -- Social Security will be jeopardized.  That's because the resources in the Trust Fund will be increasingly comingled with general revenue funds -- and, hence, increasingly connected to the deficit.

The government has borrowed from Social Security to pay for other things (through IOUs, bonds, etc). It does need to use general revenues to make good on borrowed funds. But this is a debt owed TO Social Security, not a debt caused by Social Security. This is a debt owed to the millions of workers who have contributed to the Social Security system through the payroll tax. However, now that general revenues are contributed to the Trust Fund to offset the cost of the tax holiday, some people will undoubtedly claim that Social Security has become a drain on the national treasury.

Also worth worrying about here is contagious political cowardice about "raising taxes."  The payroll tax holiday is framed as just that -- a holiday, ie, a short-lived break. But as we know from other tax cuts with built-in expiration dates, the planned end of a tax cut quickly becomes a "tax increase" in popular parlance.  There hasn't been much resolve to allow the years-long tax holiday for the rich to end.  When the time comes, will there be greater resolve to allow an end to the 2-year tax holiday for workers and 1-year tax holiday for employers?  Even when billed as a "middle class tax increase" and a "job-killing tax on business"?

Once the payroll tax basis of Social Security financing has been corrupted the future of Social Security will no longer be in doubt.  It won't have one.

Urge Your Congressmember to CoSponsor the Conyers Resolution Opposing Cuts to Medicaid, Medicare, and Social Security

Oppose Cuts to Medicare, Medicaid, and Social Security

Cosponsor H. Con. Res. 72

Clearly state that any legislative language approved by the Joint Select Committee on Deficit Reduction should not reduce benefits for Social Security, Medicare, and Medicaid recipients.

 Current Cosponsors (38):  Grijalva, Lee, Johnson (GA), Thompson, Al Green, Towns, Jackson-Lee, Woolsey, Schakowsky, Jackson, Clarke (NY), Richardson, Christensen, Honda, Waters, Davis (IL), Butterfield, Fudge, Lewis (GA), Cummings, Gonzalez, Kucinich, Filner, Wilson (FL), Bass, Stark, Hinchey, Clarke (MI), Cleaver, Bordallo, Frank, Gutierrez, Courtney, Nadler, Reyes, Olver, Cohen, Rush    

Dear Colleague:

As you know, the debt ceiling package that was recently signed into law by President Obama creates a Joint Select Committee on Deficit Reduction.  This committee is tasked with improving the short-term and long-term fiscal imbalance of the Federal Government by identifying at least $1.5 billion in additional cuts.

The creation of the Joint Select Committee on Deficit Reduction makes three of our country’s most vital safety net programs - Medicare, Medicaid, and Social Security - targets for cuts.  Such cuts would be highly unpopular with the public and would weaken the health of our social insurance programs at a moment when the economy is reeling.  

Congress needs to go on the record and state its intent to preserve America’s safety net and social insurance programs.  The Super Committee needs to prioritize the preservation of Medicare, Medicaid, and Social Security and focus on finding a means of balancing the budget that doesn’t harm working families. 

If you would like to cosponsor H. Con. Res. 72, please contact Michael Darner in my office at michael.darner@mail.house.gov.

Sincerely,

John Conyers, Jr.

MEMBER OF CONGRESS

CONCURRENT RESOLUTION

Expressing the sense of Congress that any legislative language approved by the Joint Select Committee on Deficit Reduction should not reduce benefits for Social Security, Medicare, and Medicaid recipients.
Whereas S. 365, the `Budget Control Act of 2011', creates a Joint Select Committee on Deficit Reduction tasked with providing recommendations and legislative language that will significantly improve the short-term and long-term fiscal imbalance of the Federal Government;
Whereas large majorities of Americans want to address the deficit in a way that preserves Medicare, Medicaid, and Social Security benefits;
Whereas the Medicare program reflects the Nation's commitment to the health and independence of older Americans and Americans with disabilities by providing health care coverage to 42 million people;
Whereas Medicare safeguards beneficiaries and their families from the ruinous costs of medical treatments and prevents individuals from spending unmanageable proportions of their incomes on medical care or being pushed into poverty by their medical bills;
Whereas Medicaid provides a safety net for both low-income and middle-class families who may have family members stricken with catastrophic illness or injury or face prolonged infirmity in old age;
Whereas cuts to Medicaid would severely impact low-income families and individuals with disabilities, and curtail access to critical services, including nursing home and community care services;
Whereas cuts to Medicaid would limit the program's ability to provide women without health care coverage with prenatal, maternity, and postnatal care and hamper the United States efforts to prevent infant and prenatal deaths;
Whereas Social Security provides essential financial support to almost 55 million people in the United States, including more than 35 million retired workers;
Whereas Social Security provides modest benefits averaging $14,000 per year for retired workers, based on contributions paid into Social Security over a worker's lifetime of employment;
Whereas Social Security can pay full benefits through 2035;
Whereas Social Security has no borrowing authority, currently has $2.7 trillion in accumulated assets, and, therefore, does not contribute to the Federal budget deficit; and
Whereas the citizens of the United States deserve thoughtful and fair Social Security reform to protect current and future benefits and to ensure ongoing retirement security for seniors, protections for persons who become disabled, and benefits for the young children and spouses of deceased and disabled workers: Now, therefore, be it

Resolved by the House of Representatives (the Senate concurring), That it is the sense of Congress that—

(1)    any deficit reduction plan put forward by the Joint Select Committee on Deficit Reduction should not balance the budget by eroding America's hard-earned retirement plan and social safety net;

(2)    Medicare's ability to deliver high quality health care in a cost-efficient manner should be strengthened and its benefits should be preserved for current and future retirees;

(3)    appropriate reform to strengthen Social Security's long-term outlook should ensure that Social Security remains a critical source of protection for the people of the United States and their families without further increasing the retirement age or otherwise decreasing benefits; and

(4)    Federal funding for the Medicaid program should be maintained so that senior citizens, poor and disabled children, and others with disabilities are able to gain and retain access to affordable health care.