The announced proposal for yet another Social Security payroll tax cut should trouble all who care about preserving the program's dedicated funding stream. Over 54 million Americans currently receive benefits they have earned, and 20 million people are lifted out of poverty by this truly American program. To permanently fund retirement, disability, and survivor benefits, the Federal Insurance Contributions Act (FICA) established a payroll tax. These dedicated contributions have financed Social Security benefits without adding one penny to the deficit for over 75 years.
Similar to how a company isolates its pension fund from its general operating account, the Social Security Trust Fund stands alone and does not have to compete with other government programs and priorities for funding. About designing a social insurance program that does not rely on the Congressional budgeting process, President Franklin Roosevelt famously said, "we put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program."
A 2% payroll tax cut was passed last December as part of the tax compromise. At the time, we warned that dipping into Social Security's revenue stream and replacing it with general fund transfers would set a dangerous precedent at a time of great economic and political uncertainty. Breaching this sacred funding stream would also make defending against further attacks more difficult. We further warned that it would be difficult to let so-called "temporary tax cuts" expire and that a permanent 2% cut in the payroll tax would double Social Security's 75 year shortfall. Though those supporting this provision suggested it was just a one-time temporary measure, recent news reports, regrettably, seem to be justifying our concerns.
Social Security's popularity comes from the direct contributions of American workers, who pay into the system now and benefit when they retire or become disabled. Polling shows that they do not mind contributing their part because they know what they are getting for it. Unless and until faith in Social Security has been restored to the American people through long-range solvency, short-sighted cuts to the program's revenue stream must not be part of any debt ceiling or budget deal.
We urge you to join our call to the Obama Administration to resist accepting any deal that extends or expands cuts to Social Security taxes.