Letter to Congress Opposing Payroll Tax Cuts

December 15, 2010

United States House of Representatives
Washington, DC 20515

Dear Representative:

On behalf of the millions of members and supporters of the National Committee to Preserve Social Security and Medicare, I express our strong opposition to the payroll tax cut included in the tax cut package before the House. Despite claims by its proponents, we believe that passage of a payroll tax “holiday,” which would reduce contributions to the Social Security Trust Fund by $112 billion, would have devastating effects on Social Security for the following reasons:

There is no such thing as a temporary tax cut. Advocates for a tax “holiday” say it would last only for one year, and then funding for the program would revert to the current payroll tax rate. But if we have learned anything in the last few weeks, it’s that there is no such thing as a “temporary” tax cut. If Congress is unwilling to allow tax cuts for wealthy Americans to expire this year, it is equally unlikely that the so-called tax “holiday” would end one year from now. The lapse in the payroll tax cut would be portrayed as a massive tax hike rather than the legislated end of the “holiday,” just as the remaining tax cuts in the bill have been characterized. In fact, restoring the two percent payroll tax would be portrayed as a 50 percent tax increase on every American worker, making it politically difficult to restore funding for the program at the end of 2011. The problems with this proposal are compounded by the fact that workers would not be receiving any additional benefits for those reinstated contributions.

The 2 percent payroll tax cut is the beginning of the end of Social Security as we know it. Coupled with the payroll tax cut, the legislation includes a provision that would use general revenues to reimburse the Social Security Trust Funds for the $112 billion in lost payroll tax contributions. Extending the tax holiday, or making it permanent, would leave Social Security dependent on general revenues and the actions of Congress for its funding rather than workers’ contributions, which have so successfully funded the program since its inception in 1935. Making matters worse, a permanent extension of the payroll tax cut would more than double Social Security’s 75-year projected shortfall. At present we can say that Social Security has not contributed one dime to the huge deficits that plague our country. That would change if Social Security were to become even partially dependent on general revenues. The needs of America’s seniors would suddenly have to compete with other benefit programs, funding for the Defense Department, and hundreds of other government programs that are funded out of general revenues. And Social Security would become a target for deficit reduction since the program would be partly dependent on general revenues for the payment of benefits.
Finally, using general revenues to pay benefits would weaken the earned-right nature of Social Security. This is a fundamental aspect of the program, and accounts in large measure for its enduring popularity. Workers pay into the program in the belief that, when the time comes, they will receive benefits in return that reflect the contributions they have made during their working lives. Using general revenues to fund Social Security, even partially, blurs this essential feature of the program.

Cutting contributions to Social Security is not the best way to stimulate the economy. Clearly, something needs to be done to encourage job growth and to reduce our alarmingly high rate of unemployment, but not at the expense of Social Security. The Tax Policy Center reports that the wealthiest 40 percent of households benefit most from a payroll tax cut. 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, rather than enacting a payroll tax holiday, would do more to boost the economy and help all workers.
While cutting payroll taxes by $112 billion may sound like a good deal for workers, it is a bad deal for Social Security – the program that most of these same workers will rely on in the future. We urge you to remove this provision from the tax legislation.

Sincerely,

Barbara B. Kennelly
President & CEO