White House and lame duck lawmakers are trying to come to an agreement on the payroll tax holiday.
Addressing the Payroll Tax Holiday
The White House has asked congressional Republicans for a one-year continuation of the 2 percent payroll tax holiday as a way to prime the economy, a reversal from the insistence by administration officials earlier this year that it should expire on schedule at the end of the year.
Republicans rejected the President’s plan but the idea of maintaining lower payroll tax rates has lingered on Capitol Hill and drawn some support from members of both parties.
Payroll Tax Cut
Social Security analysts are not wavering. Experts on all sides agree that the payroll tax cut is bad policy because it undermines the basis of Social Security and hurts the structural integrity of the program, which has survived for almost eight decades as a program independent of the general fund budget.
“You’re undermining Social Security as a benefit that people earn by their payroll taxes,” said Andrew Biggs, a resident scholar at the conservative American Enterprise Institute. “The idea was always that Social Security isn’t a welfare program because we’ve paid our payroll taxes. People on the left and some people on the right say we don’t like the precedent we’re setting.”
“If this goes on it makes it much more difficult to make a sound strong argument that Social Security is separate, financed out of payroll taxes and is not paid for out of general revenues,” said Max Richtman, president of the National Coalition to Preserve Social Security and Medicare.
Those against doing away with the tax cut say, it has a significant advantage. According to the Congressional Budget Office, the payroll tax cut is one of the quickest and easiest ways to boost consumer spending and stimulate the economy. That’s because households are more likely to spend that money than to save it.
The CBO projects that a two-year extension of the tax cut combined with extended unemployment benefits would boost economic growth by 0.7 percent and create 800,000 jobs. But that carries a price in the form of a $258 billion addition to the deficit.