Reshaping Social Security and Our Society; Payroll Tax Holiday Could Transform the Program into Welfare

Article excerpt


Social Security has fundamentally changed. This is because the historical, almost sacrosanct, linkage between Social Security taxes and benefits has been severed. President Obama was able to achieve this feat with only marginal objection from supporters of the traditional system or from those who have advocated reforming Social Security to a saving-and-investment structure. This is a rather remarkable political coup in that these two factions have fought each other every step of the way on almost any suggested change to the system. But not this time, for the president framed the change mainly as a jobs program. Where this delinking ultimately leads is unknown. But there is no question that Social Security is headed in a very different direction.

It all started March 18, 2010, with the enactment of the Hiring Incentives to Restore Employment (HIRE) Act. Under this law, employers who hired new workers from Feb. 4 to Dec. 31, 2010, qualified for up to a 6.2 percent payroll-tax deduction for each new worker, essentially exempting the employer from the Social Security tax. The tax deduction had no effect on the new employee's Social Security retirement benefits, effectively delinking the two. According to Douglas H. Shulman, the Internal Revenue Service commissioner at the time of the bill's enactment, These tax breaks offer a much-needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year ahead. A reduction in the payroll tax was packaged as a jobs program.

The delinking morphed into a bigger role in 2011 when Congress legislated a temporary tax holiday, allowing all workers to pay just 4.2 percent instead of the previous 6.2 percent employee tax for the full year. The holiday was promoted as a way of putting more money in the hands of workers to increase aggregate demand and as another jobs program. As Sen. Kent Conrad, North Dakota Democrat, put it, I strongly support a payroll tax holiday because [the] Congressional Budget Office has told us it is the second-most-powerful thing we can do after extending unemployment insurance to help with job creation. As with HIRE, Social Security benefits were not reduced - a further delinking.

Toward the end of last year, both Republicans and Democrats wanted to expand the holiday, but for different reasons. …