To the United States Senate and House of Representatives, the New Year brings new legislation and debates about keeping the previous year’s legislation. The current debate about whether or not to extend the payroll tax holiday is inciting fear of the continuing effects to the Social Security Trust Fund versus the impact of spending losses in the economy.
Last year’s 2% payroll tax holiday was designed by legislators to help stimulate an economy still struggling from the housing and stock market downturn in recent years. A payroll tax holiday allows taxpayers to keep more of their income throughout the year, rather than losing it in mandatory payroll taxes which automatically go into the Social Security Trust Fund, which bankrolls the SSA disability and retirement benefits programs.
The debate is not whether or not taxpayers should receive some form of tax break, but rather that the payroll tax holiday is directly impacting the security of the funds required to support the Social Security programs. It is true that the funding cuts to the Social Security Trust Fund resulting from the payroll tax holiday would ordinarily result in a funding problem, but the legislation attached to it specifies that funding requirements which are not met by the cut in payroll taxes be met by the government’s general fund.
For many, this puts into question the financial security of the Social Security Disability and retirement programs. The security that payroll taxes are guaranteed to benefit those receiving SSA benefits has been replaced with the uncertain provision that funding will be replaced by other sources. In essence, the Social Security programs are being forced to compete for funding with hundreds of other government programs and obligations.
Democrats are pushing for the extension because of the impact the payroll tax holiday has been having in boosting the economy, fearful that pulling out millions of dollars from spending will put it right back where it was. Oddly, Republicans are the ones who are stalling the extension of the payroll tax holiday, and are rather proposing a refundable tax credit to benefit households which earn less than $200,000. Opponents of the continuation of the payroll tax holiday are eager to support this as a viable alternative, arguing that more money will potentially be put back into the economy while not threatening the security of the Trust Fund.
On the other hand, studies of the Trust Fund’s funding levels in the last year of the payroll tax holiday have shown virtually no impact from previous years. As the legislation provides, funding has been replaced by resources from the general fund.
An extension of the payroll tax holiday has many worried about the future security of Social Security funding. While there has been no immediate effect to the Social Security programs or its beneficiaries, some wonder that if the holiday continues, the federal government may fail to replace the missed taxes with general funds in favor of other programs. If this happens, it would definitely impact the SSA’s ability to provide its programs to those who have paid payroll taxes to Social Security their entire lives, and are now dependent on these “insurance premiums” since they have reached retirement or are no longer able to work.