The death knell of the social security contract
There's an aspect of the current payroll tax debate (circa February 2012) that puzzles me. Democrats have become the leading sponsors of tax cuts, arguing that Republicans are threatening a tax hike if the Republicans don't agree to extend the payroll tax cut. Strange days when Democrats are championing tax cuts and Republicans are seeking ways to "pay for" the cut.
Stranger still is the logic. The payroll tax cut is meant to stimulate the economy, but many economists argue that the payroll tax cut is an inefficient means of stimulus. It applies only to those who are working (on a payroll) and to many who don't need additional spending dollars. Extending unemployment benefits is much more likely to be stimulative than the payroll tax cut, as people receiving unemployment checks are likely to spend all the check on near term needs.
The strangest issue of all about the payroll tax cut is what it means to Social Security. The payroll tax is meant to fund the Social Security Trust Fund, to help pay benefits for social security recipients. We know that social security is likely to pay out more in just a few years than it takes in, and depriving the "trust fund" of revenue by extending the payroll tax cut simply makes social security more perilous. Look again at who is championing the tax extension - Democrats, who have traditionally been the champion of Social Security. This is cynicism at its highest level - championing Social Security while depriving it of revenues. At least Al Gore had the decency to pretend to place the funds in a lock box. Current Democratic leaders are depriving Social Security of needed revenues.
Will the Democrats argue that the payroll tax must be increased beyond normal levels when the economy turns around to recoup the revenue that is missing? If I were a retiree drawing Social Security I'd ask a great many questions about the continuance of the payroll tax cut and what that means to Social Security.
What I think it means is this: the beginning of the end of Social Security as we know it. When even the Democrats argue that Social Security doesn't have to be "paid for" out of taxes, it becomes evident that Social Security isn't a "trust" but a social benefit program funded out of general revenues, subject to the whims of congress and its funding decisions. A staunch supporter of Social Security in its present form should be horrified at the concept of a payroll tax cut, since those funds sustain Social Security.
If Democrats are willing to assert that payroll tax holidays are stimulus, and by extension that paying for Social Security benefits is not important, then the political party that has long been the staunch champion of the program is now arguing that Social Security has no special distinction over other government programs - it is a general revenue obligation. Anyone who votes for a payroll tax extension does so acknowledging the death knell of the social security contract.