Will Extending the Payroll Tax Cut Affect Social Security? No.

[babylonsister]

http://www.whitehouse.gov/blog/2011/12/09/will-extending-payroll-tax-cut-affect-social-security-no

The White House Blog
Will Extending the Payroll Tax Cut Affect Social Security? No.
Posted by Jon Carson on December 09, 2011 at 02:53 PM EST


Lately, many Americans have asked me if the payroll tax cut will affect Social Security. The answer is simply no.

The payroll tax cut has given tax breaks to millions of families across the country this year, providing a boost to their pocketbooks. Extending it would ensure that taxes do not go up for nearly 160 million hardworking Americans on January 1st -- an increase of $1,000 for the typical household.

While more money stays in workers’ paychecks, the law specifies that Social Security receive every dollar it would have gotten even without the payroll tax cut. This happens by automatically transferring resources from the government’s general coffers to the Social Security Trust Fund. And indeed, the chief actuary of the Social Security Administration has confirmed that the payroll tax cut would have no impact on the Trust Fund.

The President believes that Social Security is a sacred compact, that in return for a lifetime of hard work, America’s seniors will have a chance to retire with dignity. We have an obligation to keep that promise and safeguard and strengthen Social Security for seniors, people with disabilities and all Americans, both now and in the future.

The President also believes in the need to spur economic growth. The payroll tax cut will generate growth and put people back to work.

[DJ13]

1. Its still a bad deal compared to the previous "making work pay" credit

Those most in need of financial help make the least income, which in turn means they get the least benefit from this kind of tax cut because they dont pay much into it.

The "MWP" credit actually targeted those people, and gave them a huge rebate at tax time.

Now they are lucky to get a few dollars per week, which isnt enough to provide any assistance.

[suston96]

2. It's the principal of the thing........

Take 10 dollars out of your kids' piggy bank and explain to them that they still have the 10 dollars because you owe them the 10 dollars.

I know what my kids would say to me with that kind of fractured logic.

That the Treasury has to justify such an underhanded raid on the Trust Funds with a "we'll pay you back when the economy revives" or some such bullshit is really pretty sad.

Just take the fucking money and run. The people will have to wait until their heads stop spinning to realize that they have been had once more by those they expected were on their side.

There was, there is no payroll tax holiday. There is a raid on the Social Security and Disability Insurance assets known as "cash collected for the Trust Funds and disbursements."

If it looks like a raid, if it smells like a raid, it IS a raid on Social Security and Disability Trust Funds.

Oh, put that 10 dollars back into your kids' piggy bank. They worked hard for it on that paper route or cutting the grass or whatever....It's their money.

[bornskeptic]

3. What you're saying is nonsense. There is no "pay you back" involved.

Employers don't pay their employees' payroll tax directly into Social Security and Medicare. They pay it to the IRS, along with income tax withholding. The IRS deposits those funds to the account of the Treasury, which then disburses the proper amounts to the appropriate destinations. 12.4% of income subject to Social Security is paid in Social Security whether or not the payroll tax cut is in place. The payroll tax cut has no effect on how much money goes to Social Security, or when. It also has no effect on future benefits, which are based on wages and salaries earned, not taxes paid in.It only affects the amount which the IRS collects.

[suston96]

4. I do believe that the payroll tax holiday is a deferment........

The Treasury owes those monies that would have been collected as part of the payroll taxes to the Social Security Trust Funds.

http://www.cjr.org/campaign_desk/switching_sides_on_social_security.php

What to do about those FICA contributions, aka payroll taxes, now that the supercommittee has blown up? Last Christmas the Obama administration handed workers a special gift—a one-year holiday from paying their payroll taxes, which as most workers know fund their Social Security retirement benefits and disability and survivor’s benefits, should they need them later on. The year is up. Chris Wallace’s interview on Fox News Sunday with the Senate’s second-ranking members, Dick Durbin for the Democrats and Jon Kyl for the GOP, produced a huge news nugget for campaign reporters to contemplate.

The Republicans, represented by Kyl, seem to be saying that they want to keep Social Security strong, while the Dems, represented by Durbin, appear to advocate a policy that could end up jeopardizing the program. Kyl told Wallace:

The problem here is that the payroll tax doesn’t go into general revenue, it supports Social Security. And you can’t keep extending the payroll tax holiday and secure Social Security.

That 2% freebie has to be paid back to the Trust Funds. Maybe not from the tax payer - directly - but by the Treasury, which means the taxpayer - indirectly.

Here is another cite. Read the facts about the payback feature of this payroll tax cut:

http://www.counterpunch.org/2011/09/09/about-that-payroll-tax-cut/

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, except for administrative and clerical costs.

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.

If the government can’t pay back Social Security money it has borrowed to pay for other things (through IOUs, bonds, etc), it certainly won’t be shy about cutting Social Security to pay itself back for funds it shared with Social Security to offset revenue losses from the payroll tax holiday.

*******

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.

[Vattel]

5. I don't see a problem here

unless the payroll tax cut is extended for years. If the paroll tax cut became permanent, then Social Security would correctly be perceived to be a welfare program, supported (assuming the cap isn't raised) by income taxes as well as the payroll tax. That could be politically dangerous to Social Security. A payroll tax cut for a couple years to stimulate the economy would, on the other hand, be harmless.

My objection to the payroll tax cut is that it is too regressive. Poorer Americans get very little extra money from a cut in their payroll taxes. I recognize, however, that less regressive alternatives may be harder to sell to the repugs.

[bornskeptic]

6. Congratulations! You've found a source willing to spread your preferred disinformation.

Counterpunch is not a source which people interested in the truth look to for facts.

[ProSense]

9. From the CJR piece

<...>

That’s what Social Security supporters argued last year when the Obama team proposed the holiday. Nancy Altman, co-director of the progressive group Strengthen Social Security, told NPR that the tax holiday “could eventually lead to the unraveling of Social Security. If Republicans make this permanent, it could spell real trouble for Social Security.” Even though last year’s deal required a transfer of general revenue funds to keep the Social Security trust funds whole, the danger, Altman and others noted, is that eventually Social Security will contribute to the deficit because the government will have to borrow to cover benefits. That will subject the system to the same fiscal pressures and politics as other federal programs vying for a piece of the budget. She also predicted it would be hard to get the payroll tax reinstated once it was gone. No politician would want to be seen “raising” taxes on workers, even if that meant assuring their benefits years later.

<...>

The entire argument is a hypothetical about what Republicans might do.

One way to find out is to give them full control of the government. Still, what does that have to do with the current situation?

From the link in the piece above:

<...>

Altman says these cuts would not be a big deal if they were temporary, but she believes they’ll stick around. “Congress has been reluctant to increase marginal tax rates by a modest amount on the very wealthiest Americans; it’s hard to believe they would be eager to allow Social Security contributions to double on the lowest-income, working Americans,” she said.

<...>

It's a temporary initiative, "not a big deal."

[suston96]

10. Don't like my CounterPunch source?

Try this one: http://www.ssa.gov/OACT/ProgData/fundFAQ.html#n4

What happens to the taxes that go into the trust funds?

Tax income is deposited on a daily basis and is invested in "special-issue" securities. The cash exchanged for the securities goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund.

If all the income is invested, how do benefits get paid each month?

Money to cover expenditures (mainly benefit payments) from the trust funds comes from the redemption or sale of securities held by the trust funds. When "special-issue" securities are redeemed, interest is paid. In fact, the principal amount of special issues redeemed, plus the corresponding interest, is just enough to cover an expenditure.

What were the amounts of securities bought and sold during recent years?

The amount bought in 2010 was $1,020 billion, while the amount sold was $929 billion. See investment transactions for more detail and earlier years.

Why do some people describe the "special issue" securities held by the trust funds as worthless IOUs? What is SSA's reaction to this criticism?

As stated above, money flowing into the trust funds is invested in U. S. Government securities. Because the government spends this borrowed cash, some people see the trust fund assets as an accumulation of securities that the government will be unable to make good on in the future. Without legislation to restore long-range solvency of the trust funds, redemption of long-term securities prior to maturity would be necessary.

Far from being "worthless IOUs," the investments held by the trust funds are backed by the full faith and credit of the U. S. Government. The government has always repaid Social Security, with interest. The special-issue securities are, therefore, just as safe as U.S. Savings Bonds or other financial instruments of the Federal government.

Many options are being considered to restore long-range trust fund solvency. These options are being considered now, over 20 years in advance of the year the funds are likely to be exhausted. It is thus likely that legislation will be enacted to restore long-term solvency, making it unlikely that the trust funds' securities will need to be redeemed on a large scale prior to maturity.

That's from the official Social Security website. Read the rest of it and its links. Clearly some of you don't know how the system works.

Years ago copies of the 941s (Payroll Tax Forms) were sent to Social Security. In this electronic age that isn't done anymore. Funds collected and deposited to the Treasury are immediately available to the Social Security Administration to invest and to meet current obligations - as clearly outlined above.

Payroll Tax holiday non-receipts are posted as money owed BY the Treasury to the Trust Funds.

There is only one checkbook and the US Treasury keeps it. It accepts and disburses funds for different accounts and keeps records of those accounts. Included in those accounts are the Trust Funds.

[ProSense]

11. Here's

a more relevant source (PDF):

<...>

We have reviewed the language in the “Middle Class Tax Cut Act of 2011” (S. 1944), introduced yesterday by Senator Casey. We estimate that the enactment of this bill would have a negligible effect on the financial status of the Old Age and Survivors Insurance and Disability Insurance (OASDI) program in both the near term and the long term. We estimate that the projected level of the OASI and DI Trust Funds would be unaffected by enactment of this provision.

Section 2 of the bill would make the following changes for payroll tax rates and OASDI financing: (1) for wages and salaries paid in calendar year 2012 and self-employment earnings in calendar year 2012, reduce the OASDI payroll tax rate by 3.1 percentage points, (2) transfer revenue from the General Fund of the Treasury to the OASI and DI Trust Funds so that total revenue for trust funds would be unaffected by this provision, and (3) credit earnings to the records of workers for the purpose of determining future benefits payable from the trust funds so that such benefits would be unaffected by this provision. For wage and salary earnings, the 3.1-percent rate reduction would apply to the employee share of the payroll tax rate. For self-employment earnings, the personal income tax deduction for the OASDI payroll tax would be 66.67 percent of the portion of such taxes attributable to self-employment earnings for 2012. Other sections of the bill would have no direct effects on the OASDI program.

<...>

[suston96]

12. Thanks. That is relevant....

And for those not following events, it is in regard to future Social Security payroll tax cuts for 2012. This time to include cuts by employers' contributions. Great for the consumer and employers' checkbooks but still a burden on the Trust Funds.

Sorry, I disagree with the Actuary. Unless employment picks up with new jobs and rehiring to old jobs Social Security and Medicare will not withstand those generosities by the Congress and the administrations no matter who they are, reflected in that proposed legislation.

The cycle of cash payments in and out of the Social Security and Medicare systems can only suffer if the incomes are cut or deferred - that's just common sense.

Less cash coming into the checking account, more going out as baby-boomers retire in hordes and swell the ranks of the no longer employed.

[ProSense]

7. The fascinating thing

"Will Extending the Payroll Tax Cut Affect Social Security? No."

...about this debunk is that it's mostly the left pushing this bullshit claim. Besides having no credibility on the issue, the Republicans are all over the place on this.

Fact: Social Security does not contribute to the deficit, never has, never will.

Fact: Socisl Security has a $2.6 trillion surplus.

Evidently, the facts are irrelevant to proving that Obama is trying to destroy Social Security by giving Republicans a talking point.

Got that: The destuction is a talking point!

[PoliticAverse]

13. "Social Security does not contribute to the deficit, never has, never will."

This is ridiculous. If the payroll tax cuts are being replaced by funds from the general fund how is SS not then contributing to the deficit since the
government is running a deficit and any additional expenditure coming from the general fund must increase the deficit ?

[ProSense]

14. Speaking

This is ridiculous. If the payroll tax cuts are being replaced by funds from the general fund how is SS not then contributing to the deficit since the government is running a deficit and any additional expenditure coming from the general fund must increase the deficit ?

...of ridiculous...how does the government borrowing money from Social Security and paying it back contribute to the deficit? This arrangement is the government borrowing money to stimulate the economy. Taxpayers didn't voluntarily decide not to pay into the system.

It has been stated repeatedly that the funds will come from the general fund. Many economists have supported a payroll tax holiday.

Borrowing money from Social Security and then replenishing it, does not change the structure of the program.

The program's structure is codified by law. People pay into the fund, and any approved arrangement, such as the temporary tax holiday, is on the government, not the beneficiaries.

If $1 is collected instead of $1.25 because the government made an arrangement, the government is liable to repay the fund. That has nothing to do with the structure of Social Security related to the budget or deficit.

Claiming that Social Security adds to the deficit because the President and Congress approved borrowing from the fund and paying it back is like a guy borrowing $50 from you, giving it back, and then maintaining that every $50 he sees you with came from him, therefore you owe him money.

That makes as much sense as claiming that because the government has been raiding the fund, Social Security contributes to the deficit.

It's absurd, and much like the idiotic argument Republicans make.

[PoliticAverse]

16. Look, it's simple. If spending remains the same and you cut a revenue source the deficit increases.

The whole argument that Social Security has nothing to do with the deficit is based on the fact that Social Security had
as its primary specific revenue source the FICA tax. Suppose the FICA(payroll) tax was eliminated completely instead of being just
cut and was financed entirely out of general revenue like most all government programs - would you still argue that it
had nothing to do with the deficit ?

If you cut the FICA(payroll) tax and make up the difference from the general fund Social Security is now contributing to the deficit.
The majority of your arguments are misdirections from this essential fact and are in the same category of arguments that the Bush tax
cuts had nothing to do with the deficit.

[ProSense]

17. Wait

"Look, it's simple. If spending remains the same and you cut a revenue source the deficit increases."

...what? First, the proposal pays for the cuts. That's the reason for the debate. Beyond that, the cuts are on the government. A choice was made to fund a tax cut by this mechanism. The tax cut is going to be paid for, but it, not Social Security, would be the deficit driver.

The whole argument that Social Security has nothing to do with the deficit is based on the fact that Social Security had
as its primary specific revenue source the FICA tax. Suppose the FICA(payroll) tax was eliminated completely instead of being just
cut and was financed entirely out of general revenue like most all government programs - would you still argue that it
had nothing to do with the deficit ?

If you cut the FICA(payroll) tax and make up the difference from the general fund Social Security is now contributing to the deficit.
The majority of your arguments are misdirections from this essential fact and are in the same category of arguments that the Bush tax
cuts had nothing to do with the deficit.

Funny, Social Security has nothing to do with the deficit, yet you're saying that cutting FICA increases the deficit?

It's a one-time arrangement: government borrows money from Social Security (in this case, simply letting taxpayers hold on to some of their money), and then the government pays back the money it averted.

The rest his hypothetical because FICA isn't being eliminated and there is no impact to Social Security.

[polichick]

8. Why handle a tax cut this way though?

[cascadiance]

15. I wonder if someone's trying to stealthily implement what I proposed sometime back...

to lower the payroll tax and remove the cap altogether with no donut hole in such a way that it still is solvent, gives a tax cut to those that have been paying in to it so long for an economic stimulus, and at the same time not 'raise' taxes on those making between $106k and $250k to keep Obama's commitment not to do such.

Perhaps the Democrats are trying to already have the tax cut in place so that come 2012, if they retake congress, they will implement the other half of the equation and remove the cap then. Perhaps Republicans are smelling this and that is why they are looking to stop this now from happening.

I do agree though that long term a cut to payroll tax without a cap adjustment of some sort to keep SS and Medicare funded appropriately would be a mistake. Perhaps they could raise it later on more justifiable terms if along with that they get rid of Medicare Part D 'gifts' and add Medicare Part E for everyone to implement single payer for everyone. I'm sure that everyone would like to pay only a little more compared to what they and their employers are paying for private insurance now.