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Democrats Are Wrong: Extending the Payroll Tax Is Neither Good Economics Nor Good Politics

By Max Richtman

When the president and Congress promised the Social Security payroll tax "holiday" was only temporary two years ago, I said "who's kidding whom?" There is no such thing as a temporary tax cut in Washington, and Congress is proving that fact yet again. Diverting money from Social Security was a bad idea when it was first enacted in 2010, it was a bad idea when extended last year, and is still a bad idea now that this alleged "temporary holiday" has lasted two years.

Providing tax relief to middle-class Americans has been important to our continued economic recovery; however, extending cuts to Social Security's funding stream is not the only or even best way to accomplish this goal. The payroll tax cut, coupled with general fund transfers to replace the lost revenue, leaves Social Security increasingly dependent on both general revenue and Congress for its funding. This is a dramatic and dangerous departure from relying on workers' contributions, which have so successfully funded the program since its inception in 1935. Extending the payroll tax cut another year threatens Social Security's financial integrity and makes it even more vulnerable to benefit cuts or privatization.

Too many in Washington seem obsessed with using Social Security's revenues as the solution for a whole host of fiscal problems that have nothing to do with the Social Security program. Whether it's cutting benefits in the name of deficit reduction (even though Social Security by law can not contribute to the debt) or diverting payroll taxes to stimulate the economy, these approaches ignore the fact that Social Security is paid for, earned by, and promised to American workers. They're tired of their Social Security contributions and benefits being used as political leverage in Washington's version of "Let's Make a Deal."

Democrats should know better. Some of them continue to use Social Security as a bargaining chip in misguided attempts to force Republicans to finally put deficit-busting tax cuts for the wealthy on the table. Between plans to divert revenue from Social Security and proposals to cut Social Security benefits it's no wonder the middle-class has so little faith in Washington. Not only is diverting billions in Social Security contributions for a seemingly endless "tax holiday" not the best stimulus for middle-class workers; it's also bad business for the program that most middle-class Americans will continue to rely upon in the future.

Recent positive economic data reflects reduced unemployment and increased housing starts but if policymakers believe we need more stimulus, we should reintroduce the successful "Making Work Pay" tax credits. Economists at the Center on Economic and Policy Research support "Making Work Pay" as a less complex, more progressive method of stimulating the economy that does not threaten Social Security's integrity.

Social Security has been, and should continue to be, a self-financed insurance program. However, extending this so called "temporary" tax cut once again and continuing to divert Social Security revenues will only confirm the average American's worst fears about Washington. A promise isn't really a promise when it comes to Social Security.

Extending the payroll tax cut is simply not good economics or good politics.



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