Obama Attack Social Security
Obama’s tax compromise not only gives a 700 billion dollar tax break to billionaires but has an even more dangerous aspect. It is the Trojan horse provision that threatens to destroy Social Security by undermining the longterm solvency of the social insurance system. Obama is proposing to knock 2 per cent off deductions that every worker regularly contributes to the Social Security Trust Fund. Social Security is funded by a 6.2 percent payroll tax on the first $106,800 earned by a worker. The tax is matched by employers. The package negotiated by Obama would reduce the tax paid by workers to 4.2 percent for 2011. The Social Security Trust Fund is the means by which the federal government of the United States accounts for excess paid-in contributions from workers and employers to the Social Security system that are not required to fund current benefit payments to retirees, survivors, and the disabled or to pay administrative expenses. The trust fund contains the securities that will be redeemed to make benefit payments in the future when contributions derived from payroll taxes and self-employment contributions no longer are sufficient to fully fund then-current benefit payments.
Social Security has accumulated a $2.5 trillion trust fund since the 1980s. But the government has borrowed that money to pay for other programs. The Treasury Department has issued special bonds to Social Security, guaranteeing the money will be repaid, with interest. This year, for the first time since the 1980s, Social Security will pay out more in benefits than it collects in payroll taxes. Without changes, Social Security’s trust funds will run out of money by 2037, according to the trustees who oversee the program. Paid-in contributions that exceed the amount required to fully fund current payments to beneficiaries are invested in securities issued by the federal government. The securities issued under this scheme constitute the assets of the Social Security Trust Fund. Because under current federal law these securities represent future obligations that must be repaid, the federal government includes these securities within the overall national debt.
The plan is part of a package of tax cuts and extended unemployment benefits that Obama negotiated with Senate Republican leaders. It would cut workers’ share of Social Security taxes by nearly one-third for 2011. Workers making $50,000 in wages would get a $1,000 tax cut; those making $100,000 would get a $2,000 tax cut. The government would borrow about $112 billion to make Social Security whole. Advocates and some lawmakers worry that relying on borrowed money to fund Social Security could eventually force it to compete with other federal programs for scarce dollars, leading to cuts.
The payroll tax cut would provide relief to any worker earning a wage. It would replace Obama’s Making Work Pay tax credit, which has provided modest increases in most workers’ paychecks for the past two years.
The payroll tax credit would be more generous to individuals making more than $20,000 and married couples making more than $40,000. For those making less, the payroll tax cut would be less than the Making Work Pay credit.
Making Work Pay, which expires at the end of the year, gives workers a tax credit of 6.2 percent of their wages, but it is capped at $400 for individuals and $800 for couples. The credit is phased out for individuals making more than $75,000 and couples making more than $150,000.
A worker would have to make $20,000 in wages for the payroll tax cut to equal the $400 Making Work Pay tax credit; couples would have to make $40,000.
At the wealthy end of the pay scale, workers making $106,800 — the maximum amount of wages subject to Social Security taxes — would see their payroll taxes reduced by $2,136. That worker’s spouse could also get a payroll tax cut of up to $2,136, if he or she makes at least $106,800.
The deal also represents an immediate tax increase for the poor. The payroll tax cut would replace Obama’s Making Work Pay tax credit, which expires at the end of the year. It gives workers a tax credit of 6.2 percent of their wages, but it is capped at $400 for individuals and $800 for couples. A worker would have to make $20,000 in wages for the payroll tax cut to equal the $400 Making Work Pay tax credit; couples would have to make $40,000. doing. Greider also notes that Obama has defended Social Security many times. The critique of this view is mine not Greider’s. Whatever Obama may say his actions could lead to the demise of Social Security and to pretend he does not know it defies common economic sense.
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