Letter to Vice President: Don't Extend Social Security Payroll Tax Holiday

June 9, 2011

The Honorable Joseph Biden, Jr.
Vice President of the United States
The White House
1600 Pennsylvania Avenue, NW
Washington , DC 20500

Dear Mr. Vice-President,

On behalf of the millions of members and supporters of the National Committee to Preserve Social Security and Medicare, I am writing to express our strong opposition to extending or expanding the temporary Social Security payroll tax holiday enacted in stimulus legislation last year.

Advocates for the tax "holiday" argued that it would last only for one year, and then funding for the program would revert to the 6.2% prevailing tax rate. Reportedly, the Administration is now considering a proposal not only to continue the two percent reduction in the Social Security tax rate into 2012, but also to expand it to reduce the employer contribution rate by the same amount.

We believe that such a course would eventually have a devastating effect on Social Security because using general revenues to pay benefits would weaken the earned-right nature of Social Security. This is a fundamental design of the program and accounts in large measure for its enduring popularity with workers of all socio-economic stripes. Workers pay into the program with the understanding that they will receive benefits that reflect the contributions they have made during their working lives. Using general revenues to fund Social Security, even partially, blurs this essential feature.

In addition, we believe Social Security will become even more vulnerable to deficit reduction proposals if the payroll tax holiday is extended. Up until now Social Security has not contributed one dime to the huge deficits that plague our country. Last year's legislation included a provision that authorized the use of general revenues to reimburse the Social Security Trust Funds for the $105 billion in lost payroll tax contributions.

While we were relieved to see that Trust Funds were held harmless from the payroll tax reduction, the change leaves Social Security partially dependent on general revenues. The projected revenue loss from extending and expanding the tax holiday in 2012 would be double the amount lost in 2011. Such an action would leave Social Security dependent on general revenues rather than workers' contributions for fully one-quarter of the program's total income in 2012, and would change a mechanism that has successfully funded the program since its inception in 1935.

Cutting contributions to Social Security is not even the most efficient way to stimulate the economy. Clearly, something needs to be done to encourage job growth and reduce the persistently high rate of unemployment, but not at the expense of Social Security. Both the Center on Budget and Policy Priorities and the Center for Economic and Policy Research agree that extending the Making Work Pay Tax Credit would do more to boost the economy and help all workers than extending and expanding the payroll tax holiday.

We respectfully urge you to keep the promise of Social Security to American retirees, workers and their families and reject any proposal that extends or expands last year's payroll tax holiday.

Sincerely,

Max Richtman
President & CEO