One of the concerns raised regarding the tax deal President Obama negotiated with Congressional Republicans is that it will undermine Social Security, as it includes a one-year cut in the payroll tax (the revenue from which goes to pay for Social Security). The administration has offered assurances that the lost revenue will be replaced with money from the general fund, but Republicans are already hinting that they will fearmonger about a tax increase when the cut expires, and if they are successful in blocking that expiration, Social Security’s long-term finances immediately get much worse.
But Rep. Rush Holt (D-NJ) is worried about something else too. During an interview yesterday with ThinkProgress, Holt explained that he doesn’t like the precedent of placing Social Security’s finances into a broader tax deal, saying that such a move will be “devastating” for the program’s future:
With this deal, Social Security is put into a package with the Bush tax cuts, with the AMT, with business accelerated expensing, and so forth. And as a result, Social Security, in a sense, becomes just another government program. And if Social Security is a program where one year you borrow from it to stimulate the economy, and another year you use it to balance the budget, you replace it from the general fund — or maybe you don’t — the political support for this will evaporate quickly…That’s the real problem here. It changes the very nature of Social Security. [...]
What is worse [than changes to the program's short-term funding] is if people begin to believe that Social Security is just another trading chip. You can use it this year for this purpose and that year for another purpose. Whether to use Social Security to accomplish other government aims, and put it in the debate just like whether the income cut-off should be $250,000 or $1 million, means that Social Security is just like those other things.
Holt said, “I think we’ve got to fix the deal, if we possibly can.” Instead of shifting money over to Social Security from the general fund, he advocated raising the cap on the payroll tax, to capture more income.
Holt is not alone with his concern. Eileen Applebaum at the Center for Economic and Policy Research wrote that “the most insidious aspect” of the payroll tax cut “is that it threatens the idea that Social Security is sacrosanct, a reality so important to the economic security of the nation that the taxes that support it should never be tampered with.” To address this problem, the House is reportedly considering changing the payroll tax holiday into a one-time refund check, based off a proposal by Rep. Brad Sherman (D-CA).
Cross-posted on The Wonk Room.