Dear Speaker Pelosi, Leader Hoyer, and Chairman Levin:
Democrats have defended Social Security as a sacred trust that has protected America's seniors for 75 years. We write today because a dangerous precedent is on the verge of being set, which will jeopardize Social Security as a pillar of economic security for America's workers.
Unintended or not, a consequence of the temporary payroll tax cut incorporated into the recently unveiled tax cut compromise poses a significant threat to Social Security's revenue base. This tax cut proposal risks opening a door Democrats have long fought to keep closed - budgetary attacks on Social Security.
By making the federal budget responsible for a large portion of Social Security's funding, the result of the proposed payroll tax cut, Congress would jeopardize the program's dedicated funding base in an unprecedented way. In short, the hard-earned retirement benefits of America's workers would soon have to compete with defense programs, children's nutrition, physician reimbursements, and other items for a share of the general budget.
Under current law, Social Security does not add one penny to the budget deficit, but that fact will change if this proposal is enacted. This proposal would cause Social Security to add $120 billion to the budget deficit every year that the payroll tax cut is in place. The President is correct that we should put more money into the pockets of hard-working Americans. A more stimulative alternative is an across-the-board, refundable tax credit like the Making Work Pay initiative, which costs $60 billion per year. For the same cost as the proposed payroll tax cut, Congress could double the Making Work Pay tax credit to $800 for individuals and $1,600 for families, all without touching Social Security.
If the temporary payroll tax cut is approved, the end of 2011 will inevitably force Congress to confront the possibility of working families facing a two percent tax hike when the current payroll tax levels are reinstated. If the debate around the expiration of the Bush tax cuts has taught us anything, it is that, fair or not, a so-called temporary tax cut can be quickly re-characterized as an impending tax hike.
America's retirees of today and tomorrow cannot afford shortsightedness on our part. Forcing Social Security to draw $120 billion per year from the general fund would undermine the secure revenue stream at a time of great economic uncertainty. Steps should be taken to strengthen Social Security -- not weaken it as this proposal would do. Even worse, if this proposed change were to be made permanent, a two percent cut in the payroll tax would double Social Security's long-range shortfall.
In this challenging economy, an across-the-board tax credit would put far more money in the pockets of Americans who need it most and who will spend it immediately. A regressive payroll tax cut in an era of continually rising income inequality is simply the wrong direction for Congress to go. The proposed compromise payroll tax cut would award millionaires and billionaires an additional $2,000 while our shrinking middle class would receive far less.
There is no doubt that hardworking Americans deserve tax relief, but they also deserve a secure retirement. We can have both.
Social Security is our nation's most cherished program, and Americans have told us time and time again they are more than willing to pay FICA taxes in exchange for some basic security at retirement or in case of a disabling injury or illness. We believe that it would be a grave mistake to jeopardize the dedicated funding of Social Security, and we respectfully request that any final package the House brings up for consideration include an expanded middle class tax credit rather than a payroll tax cut.