The ink on the tax cut deal isn't even dry and there's already talk from both sides of the aisle about extending its most unpopular provision: the Social Security payroll tax holiday.
Conservatives like the idea of extending the Social Security payroll tax holiday because it will give them leverage to win Democratic support for long-term cuts to Social Security that they couldn't achieve on their own. Meanwhile, on the liberal side, Ezra Klein has voiced support for an extension because he would like to see a more progressive funding mechanism for Social Security than payroll taxes. TodayWednesday, he added another argument: that extending the Social Security payroll tax cut into 2012 will boost President Obama's reelection chances.
Klein is correct that an extension would deliver a short-term economic boost that would boost President Obama's reelection prospects. He's also correct that relative to other federal taxes, the Social Security payroll tax is regressive. But that doesn't mean he's correct to embrace an extension. In fact, it just proves the case I've been making: the Social Security payroll tax cut is a political trap because it gives the GOP another hostage, setting up another hostage crisis in which they will be able to extract huge concessions.
In theory, I'd love to see Social Security have a more progressive funding structure. In reality, the only way to do that without risking the integrity of the program is to raise the payroll tax cap. On paper, cutting the Social Security payroll tax and replacing the lost revenue with funds from the general account would make the system more progressive. But such a change would require fundamentally changing the funding mechanism for the most popular and valuable government program without any guarantee that the change would strengthen the program. Indeed, it could put the program at risk: the major benefit of its regressive funding mechanism is that everybody knows that they've paid into Social Security and everybody has a legitimate claim on receiving benefits from the system when they retire. They know it's not welfare. It's a retirement security program for which they have paid their fair share.
While Social Security's popularity stems from its benefits, its funding mechanism has withstood the test of time. I understand the wonky urge to play around with it, but this is a case where the perfect very well could be the enemy of the nearly perfect. Social Security works. Its popular. It's not something that needs to be fixed. So don't fix what isn't broken. Especially when there are so many other problems with our government, overhauling Social Security shouldn't be close to being on the table, especially when there's a Republican House and a U.S. Senate in which Republicans have made significant gains. Even if Democrats controlled Congress, this wouldn't be the time to experiment with Social Security; with Republicans in control of the House, they would certainly extract an unreasonable price for such experimentation.
It's important to remember that according to ABC's polling, the Social Security payroll tax holiday is an unpopular idea: just 39% support the idea and 57% oppose it. Why would a wide majority of Americans oppose a tax cut? Simple: because they understand the value they get from paying the Social Security payroll tax, and they know that in the long run, you can't get something for nothing.
Assuming this tax cut deal passes, there's going to be a loud chorus of demands, mostly from politicians, that the Social Security payroll tax holiday should be extended. When that happens, progressives are going to need to stand strong and say "no" and we're going to have to do it knowing that we're on the right and popular side.