Is Your Tax Holiday Gift A Lump Of Coal?

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!”

I’m not an economist. I’m not even very good with numbers — I don’t think I ever got any grade higher than a B minus in any math class I ever took, and I haven’t balanced my checkbook in 30 years. So I’m not the guy you want to ask about whether lowering the payroll tax is a wise economic move for our country.

On the surface, it sounds like a good move. It puts more money into the hands of American workers. And the proposal for 2012 would lower the tax burden for many small businesses in this country.

However, what many people may not realize is that the law requires the Social Security trust funds to be reimbursed from the general funds to make up for the shortfall in payroll tax collections. So that means we’re still paying the piper, i.e., the Social Security funds. It’s just that the money is coming out of one pocket instead of another.

Congress is currently arguing over whose pocket will get picked in 2012 to pay for the extra general revenues needed to reimburse the Social Security funds. Many Democrats want to increase taxes on the wealthy. And as I write this, many Republicans seem to be in a bit of a tizzy over how to deal with this issue. On the one hand, they don’t want to be seen as opposing a middle-class tax break. But on the other hand, they don’t want any kind of tax increase to pay for it. I’ve seen dozens of proposals from the right side of the political aisle to pay for the payroll cuts. Some seem to have merit.

But as I said, I’m not smart enough to weigh in on any of these economic arguments. But I do know a lot about Social Security, so I am smart enough to know that I sure wish politicians — Democrats and Republicans — would stop playing games with Social Security and start getting serious about long-range reforms to the program.

Everyone knows, or should know, that Social Security needs a makeover. The demographic time bomb, represented by baby boomers quickly turning into geezer boomers, has been ticking for years. The Reagan Administration and Congress first dealt with the issue in 1983. But the reforms they instituted back then (increasing the payroll tax and raising the retirement age to 67) didn’t go far enough.

Now, thousands of boomers are retiring every day, leaving the ranks of Social Security taxpayers and joining the ranks of Social Security beneficiaries. For decades now, Social Security has operated rather efficiently at a ratio of 3 workers/taxpayers to 1 Social Security recipient. But in less than 20 years, there will be only two workers supporting each retiree. As it’s currently structured, the program doesn’t work at that funding ratio.

But the 75-year-old program can continue to function for many more generations with some relatively modest changes — reforms I’ve discussed many times in the column. For example, bumping up the retirement age by another notch, to age 68 by about 2030, and increasing the payroll tax by just one-half of one percent, would go a long way toward solving Social Security’s long-range funding problems.

That’s why it seems to me rather foolhardy to take a program that will soon be strapped for cash, dramatically reduce its normal revenue stream, make up the difference from other sources, and then make believe that all is well with Social Security!

I’m often accused by my more conservative readers of being a bleeding-heart liberal. Some have gone even further and accused me of being (hold your ears) … a socialist! I will admit that I strongly support such government programs as Social Security and Medicare (which really is socialized medicine). I also frequently use our social (I mean public) library, and I sent my kids to social (I mean public) schools.

But this is one liberal who gives the Republicans credit on the Social Security reform issue. I usually don’t agree with many of their proposals for change, but at least they’re willing to talk about it. Shame on my Democratic friends who bury their heads in the sand and say, “What Social Security problem?”

If you have a Social Security question, Tom Margenau has the answer. Contact him at To find out more about Tom Margenau and to read past columns and see features from other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at


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