Tom W. Pauken, FloydReports.com
Social Security has been a political football for a long time. That makes any serious effort to reform the system, and preserve its long-term viability, all the more difficult.
Ironically, the centerpiece of President Obama’s recently announced jobs program would cut payroll taxes – the principal funding source for the Social Security Trust Fund – without immediately making up for those lost revenues through other revenue streams. Normally, the employer and employee pay an equal share, 6.2 percent of income up to $106,200. This provided $544.8 billion in funding for Social Security in 2010. Last year, President Obama persuaded Congress to pass a two percent employee payroll tax cut for 2011. Thus, there will be $112 billion less in revenues to go into paying for Social Security benefits, according to Congressional Budget Office estimates. That will require finding other funding sources to make up the difference.
President Obama’s latest jobs bill calls for a much bigger cut in payroll taxes for next year. Under this legislation, the employer tax rate would drop from 4.2 percent to 3.1 percent through 2012. Employers would see their share of the payroll tax also cut to 3.1 percent on the first $5 million of their payroll. Any increase in wages (up to $50 million), from either new hires or raises, would be entirely exempt from the payroll tax. The total cost of the cuts is projected to be $240 billion, which would result in a 36 percent reduction in Social Security tax funding in 2012.
Such a significant reduction in designated payroll tax funding of Social Security will impact the long-term ability of the trust fund to make good on promised payments to seniors unless there is an alternative funding mechanism dedicated to make up for the shortfall caused by lowering payroll taxes. Considering that the Social Security Trust Fund is going to run out of money sometime in the future under current projections, the Obama jobs initiative will speed up that process by taking substantial, existing funding out of Social Security with no real plan to pay for it. This simply “punts” the problem of paying for it down to the 12-member Congressional Super Committee.