Will the Payroll Tax Cut Threaten Social Security?

The latest argument against the tax deal goes like this: After the payroll tax, which funds Social Security, is temporarily cut to stimulate the economy, Republicans will never let it go back up again, and indeed, that's what they're telling Ryan Grim on the Hill. This is all just a secret plan to roll Obama and go after the social safety net. Jon Walker writes at Firedoglake, "The payroll tax holiday was never a progressive idea."

Wasn't it? Rep. Jan Schakowsky's progressive budget plan included a payroll tax cut, and the Campaign for America's Future called it "A Proposal That Actually Strengthens Social Security." Josh Bivens of EPI endorsed a payroll tax cut in February, 2010, as a good method to stimulate the economy. Progressive Sen. Dick Durbin made the deficit commission include a payroll tax holiday to stimulate the economy. This is an idea that has a fairly prominent progressive pedigree.

Now, the payroll tax cut is not the most efficient path to fiscal stimulus or even the first progressive choice, but it is one of the best tax side measures, and like it or not, that's the most likely way to get stimulus into the economy right now. The question is whether Democrats will make sure that the cut expires over GOP objections -- not exactly a maneuver where they're earning high marks right now. But Kevin Drum thinks the dynamics around this temporary cut are different from those around the Bush tax cuts, because it's not linked to anything else, it's a relatively short change targeted mainly at low- and middle-income folks, and the fight will not come during an election year. I find that pretty convincing.

The other thing people worried about a fight over Social Security solvency need to realize is that you don't worry about a Trojan Horse when there's still an army at the gates. Perhaps you've read incoming House Budget Committee Chair Paul Ryan's plans for Social Security? The fight over Social Security will begin before this cut expires, and involve higher stakes. If you think Democrats aren't going to be able to win a return to normalcy for its funding mechanism, you should be awfully depressed, because they're not likely to win on a much bigger discussion about the future of sacrosanct social safety net program.

The thing is, though, that Democrats have always rallied around Social Security in ways that haven't around almost any other issue -- remember the 2005 battle over privatization? I'm much more worried that they'll cave in two years around upper-income tax cuts than that this tax cut represents a serious threat to Social Security. Now, savvy progressive activists are playing on this same dynamic, using concerns over Social Security to try to undo the deal to extend an upper-income tax cut. But given the importance of getting new stimulus into the economy, I think they're putting the cart before the horse.

But, hey, maybe the deal will just fail anyway. I'd be happy to see the Bush tax cuts expire, but dramatically lowering the chances of new stimulus makes me worried -- double-dip worried.

-- Tim Fernholz

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