Why the Payroll Tax Cut is No Threat to Social Security

social-security-card-imageI am pretty disturbed about the righteous pompousness happening in some corners of the ideological Left trying to portray the reduction in social security payroll taxes by 2 percentage point as a bad thing.  Even though the lost revenue is replaced from the general fund, their argument is that somehow, it would weaken the political position of social security and thus send it on its way to eventual elimination.

Bullcrap.  First of all, while one is generally required to pay into social security during their working years in order to receive benefits during retirement, social security is not an individual retirement fund.  It is a direct transfer payment.  Current beneficiaries are paid from current tax revenue, and whatever, if anything, is left over is put into a trust fund.  In fact, that is the very nature of it.  That's why it's called social security.  It's a social program to financially protect America's elderly.

In fact, thinking of social security the way ideologues want you to think is exactly the way to end social security as we know it.  If you are thinking about social security as a program in which what you pay in while you are working is stored somewhere to pay you the benefits when it comes time for you to collect, you are thinking about Social Security the way that George W. Bush wanted you: as individual retirement accounts, something similar to 401Ks, 403Bs, IRA's, etc.  Heck, Sharron Angle this very election cycle tried to sell her Social Security privatization plan as "individualized."

That's the problem.  Social Security is a social and a generational contract; it is not an individual retirement account.  If it were, George Bush would have succeeded in privatizing it.  And now, liberal groups with a mission to protect Social Security are making their case as though social security is simply a bunch of individual retirement accounts run by the federal government.  That stance breaks the bond of a social contract and makes it easier, not harder, for the opponents of Social Security to make the case that those individual retirement accounts should be run by, well, individuals.

The suddenly waxing poetic (which to me amounts to concern-trolling) of so-called defenders of Social Security who oppose a cut to the payroll tax rate are also making a hypocritical argument against themselves.  Nancy Altman, President of Social Security Works, had this to say, according to Ryan Grim (who's also waxing poetic about this issue).
Democrats have never allowed the rate to be cut, even temporarily, in the history of the program, because payroll taxes feed the Social Security trust fund and create the political base of support for the program, said Nancy Altman, author of "The Battle For Social Security", a history of the program, and head of the advocacy group Social Security Works. Republicans have won a long-sought victory, even as President Obama hails it as a win for his party.
In the article linked therein, Altman talks about what a bad idea it is for the general fund to have to fund social security, and how it would cost it support. In fact, she and other uber ideologues seem to think that it is the payroll tax base that provides the support for social security, and thus funding it from the general fund - actually by that logic anything other than the payroll tax - would be detrimental for the broad political support for social security.  But if she really believes that, why did she say in a message to me in October that she would do exactly that - fund social security's long term shortfall with something in the general revenue, something other than a social security payroll tax?

Here's the question I asked and the response from Altman and Erik Kingston, Co-Directors of Social Security Works:
5. Are there any measures at all you support or are willing to consider to bridge the long term social security trust fund shortfall other than (or in addition to) raising the wage cap or tax rate?

Yes, again as individuals we believe there are many modest ways worth considering – including restoring the estate tax to the 2009 levels so that it will affect only individuals with estates worth more than $3.5 million ($7 million for couples) and dedicating the income from the tax to Social Security; a financial transaction tax with proceeds dedicated to Social Security ; and treating salary reduction plans like 401(k)s.
Hmm, sounds to me like Altman is talking about shifting funds from general revenue (the estate tax) and creating a whole new, non-payroll, non-individualized tax (the financial transaction tax) to cover Social Security.  By her logic, this too would weaken social security's broad political support.  I'm sorry, but Ms. Altman, you can't have it both ways.

As a matter of fact, Ezra Klein of the Washington Post made a simple yet persuasive case for just this type of de-coupling of the funding source and benefits in Social Security.
Cutting payroll taxes and replacing them with general fund revenues is appealing in two ways. First, payroll taxes are much more regressive than income taxes. Second, I'm actually fine with breaking the sanctity of Social Security's closed funding loop. A lot of liberals disagree with me on this point, but hear me out.

Historically, Social Security has paid for itself through payroll taxes. But because Americans began having fewer kids during the 20th century, it's no longer paying for itself through payroll taxes. So now many in Washington want to cut the program's benefits to bring its spending in line with its trust fund.
In other words, it is precisely the funding structure that opponents of the payroll tax cut are battling to defend that is adding fuel to the fire of drastically cutting social security.  If the benefits are tied to the trust fund, which is funded only by social security payroll taxes, and you can't raise payroll taxes by as much as you want, the very structure is threatening cuts in benefits.  Hence, Altman at once defends the structure and speaks of adding to it outside of it.  The income tax is about the only progressive tax in this country at the federal level, which mostly fuels the general fund revenue.  Why wouldn't a progressive want to pay for a progressive cornerstone program by taking from that progressive tax funded place?

Nancy Altman is trying to have it both ways because the idea that the political support for the program would fall apart, were individual payroll tax rates to be reduced temporarily (or even permanently) is inaccurate.  The broad base of support comes not because Americans think it's some sort of an individual retirement account that they pay into, but from the broad guarantee of benefits.  It's not a welfare program because everyone who works is eligible for at least some of it, whether they are well-to-do, middle class, or poor.  Ezra Klein makes this same point, only more eloquently:
There's an argument in liberal circles that Social Security's funding structure, rather than its benefits, are what keeps it safe, as people feel they paid into the program and so protect it from attempts to cuts its benefits later on. I just don't buy it: Medicaid, the Earned Income Tax Credit, the military, farm subsidies and plenty of other policies that aren't pay-as-you-go have survived and prospered because they were popular with the American people, not because they had a particularly appealing funding structure.
Precisely.

The President's deal is an enormous amount of help for the working poor, whose tax burden essentially consists of the payroll tax.  A cut of 2 percentage points there is immensely good for them and for spending in the economy.  I suspect that Ms. Altman and other ideologues would have no problem were this deal to involve not a payroll tax cut but a straight, 2-percent tax credit for everyone who worked up to the same amount of the social security cap.  If it helps them to think of it that way, I'm perfectly happy to oblige them.  But people have got to drop this fallacy that a reduction in social security tax rates and shifting the burden to general revenue is the end of social security.  If anything, that at the end of the day strengthens social security; it does not weaken it.

Ok, but is it concern trolling?

I believe it is.  Let me clarify something.  Some have expressed the view that while the concern is misplaced, it does not qualify as concern trolling.  I respect that view, and I commend those who hold that view for their fairness.  However, I disagree.  There's a reason I'm calling this concern trolling.  Actually, a couple of reasons.  First of all, the context that this is occurring while the government is getting into further debt and thus pressure may be created later on because of general pressure on the general revenue fund just doesn't cut it.  Because the cut is temporary.  That's important not because Congress won't extend it, but because if Congress extends it, it will do so by continuing to divert money from the general fund.  If Congress cannot or does not extend it, it will simply expire and the original rates will resume.  Either way, there is no threat to the trust fund itself, and thus the benefits, from this deal.  People who are responsible for educating the public about the deal and about social security should know that.

Secondly, and more importantly, I'm looking at a context too. The context is that the people opposing this cut are doing it not independently but from a broader context of opposing the entire deal that the President made. It's not as though they are saying "take this thing out and we'll support the rest of the pact." In that context, to me it becomes a tactic to scare people to try to derail the whole proposal. That is the very definition of concern-trolling: raising unfounded concerns about a part of an agreement in order to derail the whole agreement.

By "concern trolls," I am certainly not referring to everybody who reads what's written about it and gets scared.  No, they are the targets of this concern-trolling.  I am talking about those who, knowing full well the facts above, still try to get the public to support them by presenting the fallacious argument.