Amid the irresponsible bipartisan rush to extend the current Social Security payroll tax cut (and to shift Social Security to income-tax financing as an offsetting measure), two lonely voices, one on each side of the aisle, took a stand against the proposal.
On the Democratic side Senate freshman Joe Manchin summarized the issue succinctly: “Letting Americans believe that we don’t have to pay for Social Security is wrong.”
On the Republican side another Senate freshman, Mark Kirk, made the same point: “This is revenue that supports the benefits that Social Security recipients depend on. . . if you vote ‘no’ you are supporting Social Security.”
The two Senators have it exactly right. Social Security’s lifeblood is the payroll tax. If we cut it, only one of two things can happen: either the program goes insolvent earlier, or we have to find another revenue source. The proposal on the table is to fund the program instead with income taxes and other general government revenues. This would sever the program’s connection between worker contributions and benefits, ending the historical principle of Social Security as an earned benefit and turning it into something more akin to welfare.
Proponents of the new policy adopted last year have been pointing to outside analyses suggesting that unless the payroll tax cut is extended, the economy will slide into recession. Three points in response:
- This positive effect applies only to the payroll tax cut, not to the accompanying provision that would issue additional debt to the Social Security Trust Fund. That provision serves no stimulus purpose whatsoever; it’s an accounting maneuver whose only purpose is to enable politicians to pretend that Social Security is unaffected as its tax collections are reduced.
- These models will always show economic growth slowing at whatever point the payroll tax rate is restored to 12.4%. Are we therefore to conclude politicians should never again raise it from its current “temporary” 10.4% level? If so, then just last year we doubled the already perilously-large Social Security shortfall.
- We must stop heeding the prescriptions of those who urge the shortest of short-term views of economic policy. It’s true that widely-employed models will show a positive near-term stimulus effect of adding still further to our record levels of deficit-spending. But this in no way implies that it is sensible economic policy to do so, any more than it implies that an alcoholic should embark on another day of drinking because he will feel better in the near-term than if he begins to wean himself from his dependency. At some point the painful process of fiscal consolidation needs to begin, and it only harms our economy’s overall prospects to continue to compound the size of that problem.