In December 2010, President Obama and Congress reached an agreement whereby the Social Security payroll tax would be cut by two percentage points in 2011—from 12.4 percent to 10.4 percent—as a temporary stimulus measure. The president later proposed that the cut be extended and expanded in 2012. Before Congress went home at the end of 2011, it passed a 60-day extension of the two-point tax cut. The payroll tax cut has now been further extended to last throughout 2012 at least.
Most public discussion of the payroll tax cut has pertained to its efficacy (or lack thereof) as economic stimulus. Its greater policy significance, however, lies in another provision tucked into the same law. This provision is now transferring more than $215 billion in general tax revenues (e.g., income taxes) into the Social Security Trust Fund to make up for the reduction in payroll tax revenue.
In other words, the payroll tax cut is not really reducing the amount of tax revenues committed to Social Security. All that it actually does is to shift the Social Security financing burden from covered workers to others—most notably, to those Americans who pay income taxes. This is a transformative change to Social Security, reflecting goals for broader income redistribution now ascendant on the left end of the American political spectrum. CONTINUE READING