There are some concerns about the sustainability of Social Security in wake of Congress's decision to extend the payroll tax cut this last December. Washington Post reports that for the first time in the program's history, billions of government dollars are being funneled to the Social Security trust fund to make up for money lost to the tax cut extension. Since its creation under FDR, Social Security has been sustained by American taxpayers who give a portion of their paychecks over the years to maintain a constant flow into the Social Security trust fund. But with an ongoing payroll tax cut, which was originally intended as a short term economic boost, Social Security becomes more dependent on government revenue and thus increasingly vulnerable. Read some of the article from Washington Post:
The tax cut is supposed to be temporary. But as squabbles over this issue and the Bush tax cuts have revealed, short-term tax cuts in Washington have a way of sticking around longer than planned, especially as economic growth remains slow and lawmakers are wary of raising anyone’s tax bill.
The prospect of policymakers continually turning to the payroll tax as a way of providing economic stimulus troubles experts, some lawmakers and both public trustees of the Social Security trust fund. Their concern: that Social Security will lose its status as a protected benefit owed to every working American and instead become politically vulnerable, just like any other government program.
And as this year’s debate about the nation’s debt showed, nothing is off limits to the political brinkmanship that has come to dominate Washington.
“It’s a grave step for Social Security,” said Charles Blahous, one of two public trustees for Social Security and a research fellow with the Hoover Institution. “It just seems to me the program both financially and politically will be on a lot rockier footing.”
Robert Reischauer, the other public trustee and president of the Urban Institute, said extending the payroll tax cut another year during high unemployment seems justified. But it “could, if it continues for a substantial period of time, undermine one of the foundational arguments that makes the Social Security program inviolate.”
Since its inception under President Franklin D. Roosevelt, the Social Security program has been premised on a simple contract: Americans pay into the program’s trust fund over years of paychecks through the payroll tax. In return, when they retire, they receive monthly benefits.
The payroll tax cut changes that. Instead being a protected program with its own stream of funding, Social Security, by taking money from general revenue, becomes more akin to other government initiatives such as Pentagon spending or clean-air regulation — programs that rely on income taxes and political jockeying for support.
“All of a sudden Social Security will have to compete with every other program, whereas before it had its own dedicated revenue,” said Nancy Altman, co-director of Social Security Works, an advocacy group. “It’s breaking the kind of firewall that has always existed between the trust fund and the operating fund.”
Read the full article here.