U.S.: Extension of payroll tax holiday may threaten Social Security Funding

In the LATimes Michael Hiltzick writes that extension of the payroll tax cut will undermine Social Security. Most commentators are quite happy with the extension of the Social Security Tax payroll holiday as well as unemployment insurance plus maintenance of reimbursement levels for Medicare doctors.

Hiltzick worries that each extension makes it less likely that politicians will have the courage to reinstate the statutory 6.2 per cent. This will threaten funding for Social Security.

Hitzick admits that so far the tax holiday has not hurt Social Security's financial resources. One hundred per cent of the cut must be covered by transfers from general revenue. Since 2010 that comes to 130 billion dollars. This new extension will cost about 94 billion.

Hiltzick believes that Social Security is now on the table for cuts and the revenue stream from the payroll tax is in jeopardy. Andrew Biggs a former Social Security official but now at the conservative American Enterprise Institute told the author:"Who is ever going to say, 'Now the economy's so strong that it's the right time to raise taxes'?" Other analysts think that it will be possible for the old rates to return. Given the opposition that Republicans might make against such a tax hike this seems unlikely. For much more see the full article.

US Senate rejects extension of payroll tax cut

    The tax cut saved working class households approximately one thousand dollars a year. The vote was 51 against and 49 for the extension.
    While Republicans typically are always for tax cuts but they are even more concerned about protecting the interests of the rich. The Democratic bill would have paid for the loss of revenue caused by extending the cut by a 3.25 per cent surtax on incomes of anyone earning over a million a year.
   Susan Collins a Republican from Maine broke ranks and voted for the bill but three Democrats joined the love the rich Republican crowd. President Obama naturally jumped at the chance to attack the Republicans saying: "Tonight, Senate Republicans chose to raise taxes on nearly 160 million hardworking Americans because they refused to ask a few hundred thousand millionaires and billionaires to pay their fair share.." For more see this article.