Dean Baker: The Payroll Tax Cut Did Not Cost Security Revenue

[ProSense]

The Payroll Tax Cut Did Not Cost Security Revenue

The NYT wrongly told readers that the payroll tax cut cost Social Security, "resulted in $67.2 billion of lost revenue for Social Security in 2011." This is not true. The tax cut was fully offset by money from general revenue so that the trust fund was unaffected by the tax cut.

That lie has been flying from every corner!

Expect the media to begin their typical distortions in favor of the GOP. It's the only way they can make this a "fair and balanced" fight!

[Pirate Smile]

1. I've tried to correct this here & on Twitter, being spread by people who should know better.

[young but wise]

2. K&R.

[tularetom]

3. Maybe so but I'm guessing we SS recipients

will be looking at a third year with no effing COLA.

This whole thing looks fishy. How can anyone claim that SS has no impact on the deficit and on the other hand make a statement that $67 billion in general revenue has been transferred to the trust fund?

They're paying for this "payroll tax holiday" with general tax revenues which will indeed increase the deficit.

I have no objection to this, the government has used the trust fund as its personal piggy bank for decades. But they should at least be honest about it.

[karynnj]

8. Tghe reasson is that the payroll tax, which is more regressive than the income tax,

is being used as a vehicle to give all workers a tax rebate for purposes of stimulating the economy. But, the rebate is coming from general tax funds.

This is done by reducing the payroll tax, but keeping SS whole by replacing that money from the general tax funds.

Therefore the REBATE does add to the deficit (as did the extension of Bush tax cuts), but SS is NOT paying more than its payroll tax generated.

[Pirate Smile]

9. This tax cut manages to reach the people who don't make enough to pay income taxes.

It is aimed at helping who really need it. That's why Republicans don't want to do it.

I understand the reasoning of people who don't like it (both on the Right & Left) but, as is pointed out, the social security trust fund gets the money from the general fund.

The President is trying to aim it in the most progressive way possible and people still complain.

This has been the HUGE difference between the President and Republicans - between Democrats and Republicans. Republicans want everything as regressive as possible and Obama & Democrats are trying to help in a progressive way. What a shock!

[karynnj]

26. Exactly - it reaches everyone who works - as payroll taxes start at the first dollar earned.

I was trying to explain to the previous poster how even if the payroll tax is used as the way to give money to everyone, because of the provision that the general fund replaces it, it really is money given from general funds.

[Igel]

32. No, it doesn't reach everyone who works.

A lot of people are covered by defined contribution plans or state-run retirement plans.

They don't pay into Social Security.

I work with 200+ people who don't pay FICA. Triple FICA, cut it to 0%, it doesn't matter to our paychecks.

[karynnj]

33. Oops - sorry you are (obviously) correct

[Harmony Blue]

38. False

Anyone making under 20k has told me they are paying more net

[starroute]

19. Actually, this time there's likely to be an increase

Each year's COLA is based on the previous year's July-September period, so the specific number won't be available until mid-October. But this site, which tracks the potential COLA on a month-by-month basis, expects there to be one:

http://socialsecuritypotluckdotcom.wordpress.com/2011/08/19/ssa-cola-watch-august-report-updated-monthly/

According to the Bureau of Labor Statistics (BLS), the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.1% in July 2011 to an index level of 222.686 (1982-84=100). . . . The 12 month change in the all items index remained at 4.1 percent for the third month in a row. The change in the index for all items less food and energy continued its upward trend, rising to 1.8 percent in July, with the shelter and apparel indexes contributing notably to the acceleration. . . .

As of July, the CPI-W supports a COLA of about 3.34%. I expect that the CPI-W will continue its increase in August, but I do not expect the rate to increase much. We are slipping back into recession, and this tends to be deflationary. I do think that the COLA will exceed 3%, but by how much is yet to be determined.

Remember, this month and the next two are the three critical months. Everything up through June was predictive but not material. Now it’s crunch time. The average CPI-W amounts for July through September actually determine the following year’s COLA.

The August report from the Bureau of Labor Statistics, showing the August 2011 CPI-W, is scheduled to be released Thursday, September 15. Please check back here the next day.

[n2doc]

25. Which will then be eaten up by increased medicare premiums

So I'll bet no net increase in SS payments.

[Sirveri]

30. that guys info about COLA is slightly out of date.

The 3% trigger was abolished. Also they track the last two years, and it has to be above both. The last two years didn't see a COLA increase because of a oil price spike which caused a corresponding massive spike to CPI for the tracking quarter. The next year oil prices collapsed causing CPI to be lower than 12 months prior, and while it increased 12 months after that, it still hadn't overcome the original oil spike. Hence, no COLA.

[doc03]

4. But now they have their foot in the door to permanently

defund SS in the future. When the time comes to end the payroll tax holiday it will be seen as a tax increase and Obama himself actully said that last night. Now he wants to give employers a cut in payroll taxes, when ever it comes time to discontinue them they will have every lobbyist in Washington fighting to keep them. Mark my words when the time comes you will see ads 24/7 saying it will kill jobs. In addition to that there is a strong chance we will have a Republican president to deal by then. Obama has opened the door to kill SS.

[phleshdef]

10. I'm sorry, but thats fucking crazy.

You would have to extend this payroll tax cut for a long ass time before it did any significant damage to social security. Your whole argument is based on wild eyed slippery slope nonsense. If we are going to give middle class people a tax cut like this at all, at the end of the day, its going to take money out of federal coffers. It doesn't matter if it comes from the general fund or the social security fund. That "wall" between the 2 never has and probably never will mean a damn thing. Its a phony wall to begin with. If you take money out of revenue and give it to people, you are putting social security and any other government program under the same exact "threat". Everytime you argue for any kind of stimulus that is not offset by something else, then you are advocating for a scenario that presents the same potential "danger" to social security that you are describing. It is no different.

The fact of the matter is, if we want Social Security to be solvent, we have to raise the cap. And if we actually did raise the cap, we could make a payroll tax cut like this permanent or even a bit larger because the additional money coming from upper income earners would more than cover it.

[doc03]

11. I missed the him saying anything about raising the cap on SS,

I must have dozed off during that part of the speech.

[phleshdef]

12. I missed me saying anything about him saying anything about it.

He has brought it up in the past, but thats neither here nor there. I wasn't saying he proposed that last night. He wouldn't. Last night was about jobs, not deficits and long term solvency. I brought it up because I'm making the point that if we don't raise the cap sometime in the next 10-15 years, then we will be getting closer to the point where Social Security pays out less than it takes in. This payroll tax cut is pretty irrelevant when you look at the numbers. We can afford it for a short time. Thats not even remotely close to being a problem. If you are truly worried about it, then the only conversation that matters is one that involves raising the cap.

[doc03]

22. The president only talked about making more (adjustments)

to SS and Medicare. He never said anything about lifting any cap, he is giving them what they want (cuts). I just can't assume he has any intentions of raising the cap. Raising the cap would be DOA in the current house anyway, but cuts aren't.

[Enrique]

16. people are afraid it WILL be extended for a long-ass time

it's a very real fear. Tax cuts are hard to get rid of.

[doc03]

5. Worse yet for the first time the Republicans can now say SS

added to the deficit. Therefore we have to cut SS because it is driving up the debt.

[Sirveri]

18. THIS THIS THIS!!!! Tie it to the deficit! It's causing us to go into debt!

No, Social Security is NOT causing us to go into debt, except when Obama decided to tie it into the general fund with this stupid payroll tax holiday. So now the shortfall DOES add to our debt.

Good job, you just undid the political machination installed by FDR to protect Social Security.

[doc03]

23. +10000

[Hawkowl]

34. But blue links?

But the blue link would NEVER mispresent the facts? :sarcasm:

Step one: cut the FICA tax

Step two: replace with general revenue funds

Step three: scream about the ballooning deficit

Step four: cut Social Security benefits to cut deficit

Step five: rinse and repeat until Social Security and Medicare are destroyed

Good Job Obama!!! :spank:

[brentspeak]

6. Dean Baker: The Payroll Tax Cut: A Stimulus That Progressives Should Oppose

Baker corrects the NYT's article merely for the sake of accuracy, but don't take that as an endorsement of the payroll tax cut.

http://yubanet.com/opinions/Dean-Baker-The-Payroll-Tax-Cut-A-Stimulus-That-Progressives-Should-Oppose.php

The Payroll Tax Cut: A Stimulus That Progressives Should Oppose

By: Dean Baker, Center for Economic and Policy Research (CEPR)

July 25, 2011 - President Obama is proud of the fact that he was willing to bargain away the core of the country's social safety net to reach an agreement with the Republicans on the debt ceiling. According to accounts of the negotiations, he had agreed to raise the eligibility age for Medicare to 67. He had also agreed to a change in the cost-of-living adjustment formula for Social Security that would reduce benefits by an average of more than 3 percent. This is in addition to the cuts in Medicaid and other programs that would also have been part of the deal.

Fortunately the Republicans walked away because of the tax increases in the deal. This is not the first time that the Republicans may have inadvertently saved Social Security. Their impeachment of President Clinton put an end to any plans that he had for privatizing the program.

However, we cannot count on Republican intransigence to always come to the rescue of Social Security. We know that we have a president in the White House who is perfectly willing to bargain away the program if the occasion arises.

snip

The economy desperately needs stimulus and we should find every possible way to boost employment. It is not fair that millions of workers are unemployed or underemployed because of the incompetence of people who make economic policy. But risking the future of Social Security to temporarily bring about a modest reduction in the unemployment rate is not good policy.

[woo me with science]

7. Thank you. nt

[ProSense]

13. Dean Baker: The Payroll Tax Cut Did Not Cost Security Revenue

Dean Baker: The Payroll Tax Cut Did Not Cost Security Revenue

Stick with the facts!

[Enrique]

17. you mean stick with the false implied endorsment

it's very important to point out that Baker is opposed to those cuts.

[ProSense]

20. Wait

who said anything about endorsement?

The point Baker made is a fact.

[Enrique]

21. well, when someone pointed out that Baker opposes the cut

you objected.

[ProSense]

24. Um.

may I introduce the OP.

Is there a problem with Baker calling out the NYT on a lie?

[TacticalPeek]

27. Dean Baker: "there should be no deal on a stimulus that involves a payroll tax cut"

Ibid.

[ProSense]

28. Dean Baker on the President's jobs proposal

Dean Baker on the President's jobs proposal

Not getting a lot of attention!

[alc]

14. or "SS cost $67.2 billion in general revenue"

Giving ammunition to those who say SS affects the deficit/debt.

They way they mix the general and SS books is criminal - or it would be if a corporation did it. Using "special bonds" instead of normal treasury bills to transfer money and calling the collection of those "special bonds" a trust fund is just a way of hiding what they are doing. It looks like this transfer was done appropriately, but the fact that Congress can play with SS funds this way is what got us into the SS trouble in the first place. Payroll tax needs to fund SS and nothing else. It needs to go up/down according to what SS needs. If they have extra revenue one year they need to buy normal bonds (i.e. marketable bonds so the Trust fund can sell them even if Congress doesn't approve)

[Sirveri]

29. Technically FICA goes to SS (OASDI), Unemployment ins, and medicare part A

That's what it was designed to do specifically. I'm also pretty sure they're buying normal T-bills with the extra funding. You also don't want to have continual FICA fluctuations because that would create instability in peoples personal finance plans, and it would also make it difficult to store a significant surplus for times when significant numbers of people retire. What DOES need to happen is the cap needs to be floated to cover 90+% of all existing incomes and then be tied to income growth rates of the top 1% instead of CPI. That will permanently lock it into position. I'd also like to see another vesting tier added but that's more of a personal tweak.

[bornskeptic]

36. Wrong. What cost $67.2 billion in general revenue was a tax cut.

The $67.2 billion has nothing to do with the cost of Social Security. Republican tax cuts have cost trillions over the past decade and you're worried about a lousy $67.2 billion?

[Enrique]

15. I had never heard that misinformation

it's important to point out, but is the lie really "flying from every corners?"

The argument I've heard against the cut isn't that it would directly come out of Social Security, but that the long-term use of general revenues to fund the program will lead to its demise.

[texpatriot2004]

31. Thanks for this post. K & R nm

[JNinWB]

35. Thanks for the clarification.

Of course, the thread claiming Obama is cutting SS is twice as long as this one....

[Major Hogwash]

37. Nice post.

You're a hell of a meme-killer.

[Harmony Blue]

39. Extremely misleading

and misses the point of the objections. Unrecommended. Tax cut holiday is a trojan to slowly attack it be tying it to the general deficit.