Tax-Cut Idea Pits Payrolls vs. Social Security

The Washington Times (Washington, DC), January 9, 2009 | Go to article overview

Tax-Cut Idea Pits Payrolls vs. Social Security


Byline: Donald Lambro, THE WASHINGTON TIMES

Cutting payroll taxes to quickly put money into the pockets of low- to middle-income workers - an option being considered for Congress' economic recovery package - could weaken the already-stressed Social Security safety net financed by the weekly taxes on salaries.

The payroll tax is an easy method to distribute tax cuts and it's well targeted at low-income people. But on the other side, the payroll tax is a dedicated tax, with most of it going to Social Security, and any tax cut diminishes the money that goes into that system, leaving it weaker than it already is, said Maya MacGuiness, president of the Committee for a Responsible Budget.

Social Security's defenders say a payroll tax cut would drain needed funds from the already weak retirement system - a squeeze that is made worse by the economic recession and millions of baby boomers who will soon be retiring.

We don't want to see anything done to the program that is going to create more hardship for the people who depend upon it, said Pamela Causey, a spokeswoman for the Committee to Save and Preserve Social Security.

Details of the stimulus package are still being worked out between President-elect Barack Obama and congressional leaders, but Capitol Hill aides familiar with the negotiations say lawmakers from both parties have put a temporary reduction in the payroll tax on the table. Another method under discussion is to lower withholding levels for income taxes.

There has been talk about the payroll tax but our read is this is a package that hasn't taken shape yet, said Sage Eastman, spokesman for Rep. Dave Camp of Michigan, the ranking Republican on the tax-writing Ways and Means Committee, which will handle the bill.

On Thursday, a day after Mr. Obama vowed to tackle the long-term viability of Social Security and Medicare, an Obama transition official shot down the idea that a payroll tax cut will be used to give about $500 to individuals and $1,000 to families with incomes of less than $200,000 a year.

It is an income tax cut, the official said.

The transition, however, has said it wants the rebate on weekly paychecks and to include workers who do not make enough money to pay year-end federal income taxes, which would point to the payroll.

The president-elect wants to avoid handing out the tax cut in a lump-sum payment that people likely would save or use to pay down debt rather than pump into the economy. This happened to much of the $152 billion stimulus rebate paid out early last year, so Mr. Obama instead wants to distribute rebates in the form of reduced payroll taxes to make successive paychecks fatter. …

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