Jed's concern about the payroll tax trap set by the GOP in this deal is echoed by Nancy Altman, co-director of Social Security Works and Social Security historian and expert. She warns of the time-bomb for Social Security in Obama's proposed tax cut deal framework.
The innocent-sounding payroll tax holiday, on the other hand, will lead inexorably to killing Social Security. Let me explain:
Sixty members of the Senate are unwilling to raise taxes by 3 percent on the $250,000 and first dollar (and all those dollars earned above $250.001) of those making over $250,000 and by 1.6 percent more (for a total of 4.6 percent) on the $384,860 and first dollar {and all those dollars earned above $384,861) of those making over $384,860. They are even unwilling to spare everyone making less that one million dollars any increased taxes and simply raise taxes by 4.6 percent on the $1 million and first dollar (and all those dollars earned above $1,000,001 of the nation’s multimillionaires and billionaires. (I say multimillionaires because anyone with a net worth of a few million dollars is not making an annual income of over one million dollars.)
Given that unwillingness to raise taxes by less than a nickel on every dollar earned over $1 million, I find it unfathomable that a more conservative Congress, in two years, in an election year, will increase the payroll tax by 2 percent on the very first dollar, and every other dollar up to the cap, earned by virtually every single worker in the country. Consequently, I think we have to assume that the payroll tax holiday will be extended beyond the two years the president is proposing and quite likely could become permanent....
A permanent two percent cut in Social Security contributions doubles the 75 year projected shortfall.... The pressure to cut Social Security in a slow, gradual way for younger workers will be enormous. Progressives will not want to cut benefits for the low-income – and they shouldn’t be cut; they should be increased. Despite the fact that there are few beneficiaries who do not desperately need their Social Security – 2/3rds of the elderly and 70 percent of people receiving disability benefits rely on Social Security for half or more of their income and most people think even more people will be dependent on it in the future – nonetheless, means-testing Social Security will become a viable option.... Changing the benefit formula in the manner proposed by a majority of the Catfood Commission, will appear attractive, even though it would gradually and inexorably eviscerate the benefits of the middle class, and with it, their support for the program.
When creating Social Security, FDR knew about the political danger of creating a program just for the poor, and absolute necessity of making it an insurance program into which everyone paid. Altman:
FDR recognized that a visible dedicated contribution makes it both politically and morally difficult for future politicians to cut Social Security. When pressed about the impact of payroll taxes on the economy, FDR said:
“I guess you’re right on the economics. They are politics all the way through. 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. Those taxes aren’t a matter of economics, they’re straight politics.”
That lesson seems to be going by the wayside with our current crop of elected Dems. And it's going to get worse. What are we going to be hearing for the next two years? Republicans demanding more and more spending cuts because of our ballooning deficits (made far larger by extending huge tax cuts to the wealthy). Those demands will be focused on entitlement programs, with Social Security the number one target. That will be made easier because Social Security will be in competition with other programs for general fund money because of the payroll tax holiday.
When you add on top of that talk from supposedly liberal Democrats about Social Security being sacrified on the altar of bipartisanship, the long run prospects for Social Security look grim. If it dies on the Democrats' watch, the prospects for the Democratic Party will be just as bleak.