Nancy Altman called the payroll tax cut in the Obama/McConnell deal the end of Social Security. In her view, the American political system circa 2010 doesn’t let taxes go back up, and so Social Security will face a revenue crisis faster with a reduced payroll tax. The money will come out of general revenue to pay for that payroll tax holiday, but that just makes Social Security more dependent on general revenue – and more vulnerable. That this is all coming at a time when knives have been unsheathed and are ready to hack away at Social Security makes it all the more dangerous.
Ryan Grim asked the exact right questions, and Republicans were unusually blunt with him.
Republicans acknowledged that the expiration of the tax holiday will be treated as a tax increase. “Once something like this goes into place, a year from now, when it expires, it’ll be portrayed as a tax increase,” said Sen. Bob Corker (R-Tenn.). “So in a body like Congress, precedents matter and this is setting a precedent. I think that certainly is going to create some problems down the road if it passes.”
Given that Congress, under Democratic control, can’t gather itself to let tax cuts for the wealthiest Americans expire, members of both parties are convinced that letting the payroll tax rate revert back to its current spot will be near impossible.
“Once you bring a rate down, if it goes back up, people will feel that. They’ll feel their paycheck being less and that argument” — that letting it expire amounts to a tax hike — “eventually is bound to be made,” said Sen. Mike Johanns (R-Neb.).
“There’s always a tendency to continue those things… Once something comes in, it’s very difficult to change it,” said Sen. George Voinovich (R-Ohio.) He then volunteered, without prompting, that “It would be detrimental to the Social Security system, especially when it’s in bad shape.”
Republicans are basically telling you their strategy. They will call the expiration of the payroll tax cut an increase. They will use the reduction in revenue to claim that Social Security is in bigger financial trouble than it is. They will try to stop the money from getting restored.
They might even use the expiration of the payroll tax holiday to “reform” Social Security:
Lamar Alexander, the Senate’s number-three Republican, also said that reform of Social Security should be tied to moving that tax rate back up. “My personal hope is that it doesn’t become permanent unless we deal with a way to make Social Security solvent over the long term,” he told HuffPost. “You have to remember, the payroll tax funds Social Security and I like the idea of a lower payroll tax contribution, but we’ve got to make sure Social Security is solvent, which we should be doing this next year as the first order of business.” The way to make the program “solvent” and keep taxes low, of course, is to reduce benefits.
This is a very risky experiment. No President has ever cut payroll taxes, even temporarily, in the history of the program. Intellectually speaking, the cut is time-limited, and the money will be credited to the Social Security trust fund from general revenue. We don’t have an intellectual political system.
Another fun part of Grim’s article: Kent Conrad telling him there will have to be “drastic” spending cuts when the debt limit vote comes up. “We still have that responsibility, and that opportunity, and that’s got to be the next shoe that drops here,” he said. As I was saying.
So you can talk all you want about the wonderful benefits of this plan, and how it’s a good deal for working families, but once you get past the 2012 election, you could end up with something that 1) gives away the long-term argument about taxes and keeps revenues at a level that cannot sustain progressive governance, 2) undermines Social Security. To quote Franklin Roosevelt:
“We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics,” FDR told a Treasury official in 1941.
The White House has given no credible answer to how they plan to un-set these traps they’ve set for themselves. Maybe they value the short-term stimulus. Maybe they’re only looking one step ahead. Maybe they want these long-term structural disadvantages in place.