Payroll Tax Good or Bad?

Payroll Tax Good or Bad?

2/1/2011

Many are wondering if the 2 percent cut in payroll tax is going to hurt our Social security long term survival. Is the program going to help the unemployed by making it less expensive for businesses to hire more workers? Will the tax cut push people who would normally stay home get out and look for a job? This payroll tax cut could so all the above but in the long run make our economy better and stronger.

The payroll tax will help every worker who pays the Social Security payroll tax would get to pocket an additional 2 percent of their salary instead of sending it to Social Security. The maximum benefit would be a little over $2,000, and the tax break will expire after one year. So in 2011 it will add about a thousand dollars to take home pay of the typical family. Considering the struggles today with families living pay check to pay check this program will help a lot of families make it.

Some Democratic lawmakers are worried that the payroll tax will become permanent and that Congress will be making up the shortfall in future years with general revenues. If this happens people on Social Security could lose benefits and others could be denied Social Security. Nancy Altman the Co-director of Social Security Works thinks the payroll tax cut could eventually lead to the unraveling of Social Security. Nancy is also certain that Republicans will try to make this permanent and it will lead to troubles for Social Security. She fears that once the cut is made it becomes permanent and hard to appeal it. Republican Senator Bob Corker of Tennessee is predicting the same he says a year from now when the tax break expires, it will be portrayed as a tax increase.

Some worry about where the money will come from to pay this all back. The plan will cost an estimated $858 billion in foregone revenue all of it to be covered with borrowed money. They say the money will come out of general revenues, the same that pays for food stamps and defense. We already have a $14 trillion budget deficit and some worry we are only making it worse on ourselves by the passing of this new plan. The federal government will have to borrow $112 billion to replenish the Social Security funds. Even if the economic growth does pick up the interest rates will increase and the debt created by the payroll tax cut will grow. This just means our taxes will be increased because we will have more debt to service. The government could be putting us through more economic pain in the future with more debt, higher taxes, reduced public services and more unemployment.

The legislation creating the tax cut requires that any money the payroll tax would have provided to Social Security be replaced by other U.S general revenue funds, protecting Social Security without any harm on the taxpayers. The Social Security Trust Fund's chief actuary and the executive V.P of the AARP have both spoken out and said the tax cut will have no financial impact on Social Security. (Biden,J USA Today)

I think the most important thing for us is that this plan is estimated to create more than 1.5 million jobs. The rationale for the payroll tax cut is if the government makes it less expensive