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Hullabaloo


Tuesday, December 07, 2010

 
One More Nail In The Social Security Coffin

by digby


Social Security expert Nancy Altman has written a piece today spelling out the dangers of the presidents tax cut compromise to Social security:
President Obama and the Republicans will say that the payroll tax holiday is all about stimulating the economy. But don’t be fooled. According to the Center for Budget and Policy Priorities,extending the Making Work Pay Tax Credit, is a much better, more targeted stimulus. See “Payroll Tax Holiday a Poor Stimulus Idea,” available at this link.

And the Making Work Pay Tax Credit poses no threat to Social Security. The innocent-sounding payroll tax holiday, on the other hand, will lead inexorably to killing Social Security. Let me explain:

Sixty members of the Senate are unwilling to raise taxes by 3 percent on the $250,000 and first dollar (and all those dollars earned above $250.001) of those making over $250,000 and by 1.6 percent more (for a total of 4.6 percent) on the $384,860 and first dollar {and all those dollars earned above $384,861) of those making over $384,860. They are even unwilling to spare everyone making less that one million dollars any increased taxes and simply raise taxes by 4.6 percent on the $1 million and first dollar (and all those dollars earned above $1,000,001 of the nation’s multimillionaires and billionaires. (I say multimillionaires because anyone with a net worth of a few million dollars is not making an annual income of over one million dollars.)

Given that unwillingness to raise taxes by less than a nickel on every dollar earned over $1 million, I find it unfathomable that a more conservative Congress, in two years, in an election year, will increase the payroll tax by 2 percent on the very first dollar, and every other dollar up to the cap, earned by virtually every single worker in the country. Consequently, I think we have to assume that the payroll tax holiday will be extended beyond the two years the president is proposing and quite likely could become permanent.

That means that the federal government will have to continue to transfer $120 billion to the Social Security trust funds each and every year even as it has to transfer more and more interest payments as the trust funds continue to grow and as interest rates return to more normal levels. Unless Congress acts to restore Social Security to solvency, the Treasury bonds held in trust will have to be redeemed, again on top of that new $120 billion transfer from the general fund, starting fifteen years from now, assuming Congress even continues to make the $120 billion every year before that point. These dollars will be competing with dollars for defense, environmental protection, education, school lunches, Food Stamps, Medicare, Medicaid, SSI, Pell grants for low income college students, and every other good and service financed by the federal government.

It's a landmine. The Republicans are going to run on the president's stated desire to raise taxes in 2012 --- on everyone, not just millionaires. They are going to run on the fact that he's going to "raise" the payroll tax as well. And subsequently it won't be raised.

Meanwhile, they will argue that Social Security is now showing a much larger shortfall and they will use it to demand cuts in the program. (I realize that the president said that they will use general revenue to make up the shortfall, but I think we can comfortably predict that he will not be very effective at using what they will call an "accounting gimmick" to do that. Judd Gregg on just said on MSNBC right out that it's coming from the Trust Fund, full stop. That will be their line whether it's true or not.)

I have always been skeptical of the payroll tax holiday, not because it doesn't make sense on a policy level, but because restoring a tax is always an extremely heavy lift (impossible at the moment apparently, even for vastly wealthy people) and trying to restore Social Security revenue in the middle of this social security jihad is far too risky. The politics are all wrong for even touching Social Security right now.

The 2012 election is looking like its going to be about taxes and deficits (as a proxy for fixing the economy, since everything else is off the table.) And from what I can see, the president is going to be competing with the Republicans on who will lower both of them the most. Social Security is in maximum danger in that environment.

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