Why Extending The Payroll Tax Cut Could Hurt Social Security

Tom Margenau explains why the payroll tax cut extension may be bad news for the future of social security in the latest edition of his column, “Social Security And You:”

Many people have written to ask my opinion of the proposed expansion of the so-called payroll tax holiday. As any working American knows, the Social Security payroll tax, normally 6.2 percent, was lowered to 4.2 percent for all employees in 2011. And now the administration is proposing not only to extend that reduction for another year but also to reduce the withholding even further — to just 3.2 percent.

There are also rumors about reducing the matching tax paid by employers. In 2011, employers continued to pay the full 6.2 percent, but the proposed legislation would lower their 2012 Social Security tax rate to 3.2 percent, matching that paid by employees.

So what do I think? Well, it depends on if you’re asking “Is it good for the economy?” or “Is it good for the future of the Social Security program?” My answer to the first question is a wishy-washy “I guess so.” My answer to the second question is a rather emphatic “no!”