By Nancy Altman and Eric Kingson - 12/14/11 12:23 AM EST
Today’s Democrats have lost their way. If they understood their legacy and what their party has stood for, they would never be championing a so-called payroll tax “holiday.”
Although “payroll taxes” are what today’s politicians call the payments that workers make to Social Security, these payments are more appropriately thought of as premiums for life insurance, disability insurance and retirement insurance. As long as Americans are dependent on wages, they and their families need insurance in the event those wages are lost as the result of death, disability or old age. That wage insurance is what Social Security provides.
Although today’s politicians do not seem to appreciate it, those premiums withheld from wages every payday are held in trust for the American people. The trustees are required to report to Congress every year to ensure that Social Security has sufficient income to pay every penny of its promised benefits, providing today’s elders with the peace of mind that comes from knowing that their benefits are secure. But the trustees’ report is not just on the short term but on the next 75 years, giving Congress ample time to address projected shortfalls so that today’s young workers can know that if they are fortunate enough to survive until their ’90s, Social Security will be there. (The most recent trustees’ report projects a manageable shortfall that, if the projections are accurate, Congress has 25 years to address.)
Prior to the enactment of the payroll tax holiday last year, Social Security was completely financed from dedicated revenue — revenue that could only be used for Social Security. Most came from the wages withheld from workers’ pay, matched by their employers. The “holiday” reduced the amount taken from wages by one-third and substituted for that dedicated revenue, general revenue of the government, breaking the wall between Social Security and the general budget and placing the program in competition with other federal spending for the first time in its long history.
Roosevelt explained why he structured Social Security as he did: “We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.”
Yet it is his own party — a Democratic president supported by Democratic leadership in Congress — that is championing the payroll tax “holiday” because they have convinced themselves that this is the only way to get desperately needed stimulus for the economy and the American people.
But there could yet be a happy ending, one that could save Democrats from compromising with themselves and provide credit to both political parties for putting the American people first. Some Republican senators reportedly are quietly talking about proposing a refundable tax credit for families making less than $200,000, one that would put $120 billion to $150 billion into the economy and the pockets of American families. Dollar for dollar, this would be more stimulative and it would not undermine the financing of Social Security. In this season of peace, we hope that both parties will find a way of transcending the nation’s dysfunctional hyper-partisanism and come together to do what’s right for the American people.
Altman, author of The Battle for Social Security, and Kingson, professor of Social Work at Syracuse University, are co-directors of Social Security Works. Both served on President Obama’s Retirement Security Coalition Advisory Committee and were staff for the 1982 National Commission on Social Security Reform, the “Greenspan Commission.”