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Payroll tax cut extension still in limbo

John Dimsdale Dec 2, 2011

Kai Ryssdal: Last night, the Senate voted down a one-year extension of the payroll tax cut. That’s that 2 percent break on payroll taxes most people got starting last January. It expires at the end of this month. And if it goes away, average workers will pay nearly $1,000 more in taxes next year.

President Obama and most members of Congress agree that now’s not a great time to be raising taxes on middle class workers. There’s the economy — and oh yeah, an election coming up.

But politics are never easy. So we asked our Washington bureau chief John Dimsdale to explain why it’s so difficult to reach a deal on something so many politicians agree on.

John Dimsdale: The payroll tax is 6.2 percent of a workers’ salary. It goes to the Social Security Trust Fund. This year’s tax holiday cost the Trust Fund $120 billion. President Obama proposes to expand the tax breaks next year, which would cost the Fund more than twice as much. Not good for a government retirement program already under financial strain.

But economist Eugene Steurle at the Urban Institute says if the tax break isn’t paid for, the Trust Fund is supposed to be shielded. That means:

Eugene Steurle: The money that comes from income tax revenues or from borrowing from China will be put into the Social Security Trust Fund. So the trust funds will end up with the same amount of money.

Still, Social Security’s supporters worry that political meddling with what has been a dedicated stream of money to help Americans in their old age is under threat.

Eric Kingson: Franklin Roosevelt was absolutely prescient and right when he said he put the payroll tax into Social Security so ‘no damn politician can ever scrap my Social Security program.’ That’s an exact quote.

Eric Kingson is co-director of the nonprofit Social Security Works.

Kingson: There’s a long-term cost to the extension of the payroll tax so-called holiday, and it is that it potentially undermines the financing of Social Security.

President Obama proposes to pay for next year’s break by taxing people earning over a million dollars. Republicans would rather freeze federal pay and cut government workers. So far, they can’t agree.

In Washington, I’m John Dimsdale in Washington.

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