SURVEY SAYS: Do You Think the Social Security Payroll Tax Cut Is a Good Idea?

A two month extension of the reduction of social security tax withholding from 6.2% of an employee’s pay to 4.2% was signed into law by President Obama on December 23, and news reports say Congress is considering another bill to extend the tax cut through the end of the year.
By PS

I asked NewsDash readers: “Do you think extending the social security payroll tax cut is a good idea?”  

The majority of respondents (64%) said “no” while 24% said “yes.” Six percent of respondents each said it is a good idea, depending on how employees use it, and “it’s neither a good or bad idea.”  

Those who expanded on their responses said: 

  • It’s both a good and bad idea. 
  • For two months is a knucklehead idea. Either do it for a whole calender year or not! The uncertainty and administrative costs from this bureaucracy are ridiculous. 
  • To stimulate the economy, it is a good idea. For the long term health of Social Security, it is not. 
  • He** no. 
  • Putting the 2% into a 401(k) or 403(b) should have been mandatory. 
  • Not sure. 
  • If employees put that money in their retirement accounts, then it is a good idea. 

 

Verbatim  

Most of the verbatim expressed concern about how the tax cut will ultimately affect the Social Security System, and some questioned lawmakers’ motives and thinking. My favorite reader comment was: “If there was ever a robbing Peter to pay Paul, this is it!”  

  • I will spend the extra thereby stimulating the economy. But as we’re reminded, Social Security will not be able to fulfill its future liability and reducing the income isn’t helping. 
  • This action is only bringing closer the end of the social security system for all Americans. 
  • I’d prefer seeing other tax rates reduced. Since Social Security is allegedly in financila trouble anyway, it seems illogical and counter-productive to reduce the revenue going into it, for purely political purposes. 
  • I’m against a long-term tax cut; in 20+ years, when I retire, I want SS to still exist in some form. 
  • Unfortunately our leaders act more like small children trying to win friends than principled adults that lead with wisdom. This temporary appeasement is not just laughable, it is abominable. No one seems to be willing or able to look at the reality of our bankrupt nation and “lay the cards on the table” but this is not surprising since fiscal responsibility in this nation has been out of vogue for a very long time. 
  • I think it’s a great idea, but I certainly hope people will increase their own personal retirement savings by (at least) 2% in 2012. I’m not a fan of Social Security. 
  • yes we still need a lot of help and 2% of income will help people, they really need to raise the cap to make up the difference, this shouldn’t have a cap 
  • i deferred mine to my 401(k) account, so it would appear that i was bringing home the same money 
  • Just an attempt to buy votes in an election year. There is no evidence that last year’s cut did anything except hasten Social Security’s decent into negative cash flow. Political cowardice rules. 

The whole idea was ridiculous to start with. Instead of short term, quixotic fixes, our leaders need to focus their time and effort on long-term, structural solutions. Lowering tax rates permanently and shrinking govenrment to exist with the tax revenue generated would be far more effective. It’s amazing that the irony of reducing the inflow to SS, while simultaneously discussing its potential insolvency is LOST on just about every party to this discussion!  

Verbatim (cont.) 

  • If the social security system is running out of money, why cut the tax? Why not just take the cap off so the high earners can pay more tax? 
  • Social Security is in enough trouble as it is. 
  • How does this effect the "SS Trust Fund"? Why don't they use the income tax rate instead? 
  • Social Security is projected to have deficits and our elected officials think a tax cut is the solution? 
  • Tax cut is appropriate but not Social Security 
  • Social Security needs the funds for its longevity. The press keeps talking about a tax increase now. 2011 was the first year of the SS tax decrease. 
  • Bad idea - Social Security needs the funds to pay Boomers and future generations until we become a better nation of savers. Mentality of 'I want it and now' has got to end. Federal government needs to start cutting its spending and serve as an example. Get rid of 'pork bellies' and entitlements. 
  • Our whole gov't system is hurting (Social Security system, Medicare, etc) and we are reducing the SS tax withholding? How will this help in the long run? I'm afraid the reduction in SS tax will come back to haunt us a few years from now. 
  • Just pushing govt. debt to the future! 
  • We've been told for years that the Social Security trust fund will go into the red in 25 years--so we're going to speed up that process by paying in even less now? 
  • We need real tax reform, not temporary gimmicks. 
  • no, employees did not even notice. It has reduced the amount going into the SSI trust, and no one notices the benefit in the paycheck. 
  • What happened to all the talk about Social Security running out of money? If there was ever a robbing Peter to pay Paul, this is it! 
  • Removing the limitation on taxable wages is even a better idea. 
  • since wages (for those with jobs) have remained even or decreased for the last 3 years, a one yr extension helps employees with basic income. Not sustainable over the long run, however. Extension should have a firm sun set of 12/31/2012. 
  • The President and Congress are doing further damage to an already broken and bloated retirement program. They should be ashamed of themselves. When will it ever be a good idea to allow the tax to revert to the previous level, never mind increase the tax rate to reflect current cash funding needed to make it solvent? 
  • The cut was meant to be temporary but now that it was set to expire it is viewed as an increase in our taxes. I would rather get the extra money in my paycheck but eventually it has to go back to fund social security. There will never be a good time when people will be ok with it going back. 
  • Why extend the cut? At what cost? Who gains/loses? What message does this send about saving for retirement? How much longer will this postpone tax reform/simplication? 
  • Social Security has a funding problen now. Why make it worse. 
  • If Social Security is already having future funding issues, why is putting LESS into the system a wise idea? 
  • As a temporary measure in this economy it should have been extended for this entire year before the end of last year. 
  • We continue to disconnect payment of the FICA premium from the SocialSecuirty benefit.This is a mistake and will ultimately make SS just another welfare program. 
  • Cutting the tax now sounds good given the economy. However, costs will be higher to replace the funding at some point. Again, it's this generation passing down more debt and fewer resources to our kids and grandkids. It's the opposite of what should be done. We need to face reality NOW. 
  • Why are we reducing the money going into a failing plan? 
  • Not all debt is "bad", but when you have as much debt as we do, it's all bad abd we can't afford more...it's never going to get any cheaper to pay off - if you pay all your bills each month there's no interest...putting that on "credit" costs us more (principal amount + interest!). Bad idea. We're barely pay off the interest and still piling on the debt each year. 
  • Seems like a VERY short sighted solution. Add a bit more to paychecks today, but then provide less when retirement comes along. And guess who pays for all those who don't have enought money for food, medical care and general living expenses in retirement? The same employees who received this tax cut. 

Verbatim (cont.) 

  • It's a good way to temporarily put more money in the pockets of people who will spend it so long as it get back filled from the general fund. However, using the general fund then opens a new can of worms since Social Security, which does NOT contribute to the deficit, is supposed to be funded solely be payroll taxes. What I would like to see is placing a floor on earnings subject to FICA taxes of say $20,000 on both employer and employee, giving a tax break to both individuals and small business and at the same time removing the ceiling on earnings subject to FICA taxes. I'm not sure of the exact dollar amount that could be used as a floor when used in combination with the removal of the ceiling to positively affect social security's ability to pay its benefits in perpetuity, but I'm sure it can be calculated. 
  • No need to further restrict Social Security funding. Find some other way to put a few bucks in people's pockets. 
  • I think that this tax cut should be balanced by extending the Social Security payroll tax to include incomes well above the current cutoff of around $110k/yr. Perhaps to something like $250k/yr - or higher. This would help keep Social Security funding at a reasonable level. 
  • Aggregate demand is what drives the economy, so putting more money into the pockets of people subject to Social Security taxes is a good way to do that. Hence, from that perspective, it's a good idea. I think what they really ought to do is make the tax cut permanent, also cut the employer portion and raise the wage base to a level such that, overall, it's either revenue neutral or raises revenue a bit to shore up Social Security's finances. 
  • Assuming that the 2% is being somehow put back into the trust fund from somewhere else.....in essence it is a tax cut so if that is the case, why administer it through the SS withholding tax. 
  • It's politics. Short-term tax breaks have been shown to have no effect on economic activity. We need a complete tax overhaul, not these small-fry, short-term, politically-motivated bandaids. 
  • It is a good idea only because 1) it gives the government less of our money to waste on other things and 2) that's less money I put toward something I will never collect from because it is already bankrupt in reality, if not on paper. 
  • The long term outlook for insolvency is becoming shorter with these reductions. 2% of pay in additional income, in my opinion, is not enough incentive to improve the economy. 
  • Most news reports (both sides) only define it as a payroll tax cute...Social Security isn't is a happy surplus state, WHY are we doing this? 
  • not a good idea to be messing with social security and medicare taxes. why can't congress do the right thing and address the elephant in the room, taxes and government are to damn big. cut the unnecessary rules, regulations, oversite...reduce spending and fix the tax code. 
  • It's none of the government's darn business how employees use it. It's our money to begin with and we earned it! 
  • not if the Government has to borrow the money 
  • Just continues to cause long term funding problems for SS 
  • We're just digging an even bigger hole, which is creating a larger long term problem for a short term increase. This small increase doesn't really have any impact on the economy, its all fluff and politically motivated. 
  • go ahead and raise the income limit to unlimited 
  • A small, short term tax cut will not do anything to spur the economy. 
  • Not convinced it is smart to take money form an underfunded source to begin with. Further, it is a mere political manuever that really does not help the economy. 
  • more money now, less money later 
  • I save for my retirement in my 401(k) and in my Roth IRA so This just means I have a little more money to ensure those investments are fully funded. By the time I retire there will be little or no social security so I am using the money to fund my retirement and perhaps even save more outside of retirement. This is good for me. It would be good for others as well if they saved the money for thier future. On the other side--- if there are little or no Social Security Benefits when they retire then at least they had the benefit of spending the money they earned on themselves. I do not think that higher earners should have to fund a 2% tax to repay later. Everyone should pay at the same rate for their entire income. 

Verbatim (cont.) 

  • It wasn't a good idea to reduce the rate in the first place. The SS "trust fund" was already in abominable shape before the reduction, and now we're in the awkward situation of experiencing a "tax increase" if the reduction is allowed to expire. 
  • We're talking adding $20 per week to a paycheck of $1,000 per week - not much of an incentive to spend. We have an already underfunded social security system and we want to reduce the contribution without changing the benefit. This doesn't make sense. 
  • The SS tax is earmarked for a particular federal program; it is very bad policy to cut it unless that program has a surplus. Congress has no common sense! 
  • I would say scale it so those under $75,000 get the reduction, and up to $100,000 get some, over that zero (that would be me and others who it will really have very little or no effect.) The lower income people need it. 
  • I'm almost at SS NRA so they'll be money for me when I retire. But there's no plan going forward and decreasing the fund isn't helping anyone. I doubt if employees are using that extra 2% to jump start the economy. 
  • It is illogical to cut tax to a program that is such financial trouble now. What does the cut accomplish? It does nothing except make payroll even more confusing. 
  • Isn't Social Security an underfunded plan? 
  • Most employees will tend to spend this extra amount and not save it. In the short term this will be helping the American economy grow. In the long term it just adds to our federal deficit. As fragile as the economy is in the here and now, it is more important to get the economy working and worry about paying the federal bills to later when hopefully we have a strong economy once again. 
  • this will only create additional problems down the road. Eventually benefits will be cut, NRA extended, and needs based tetsing implemented. This is a different version of a shell game, and it will not end well. 
  • The money isn't being put aside for future benefits anyway, so we might as welll get to keep it and spend it now! 
  • It's ridiculous when comparing the dire financial condition of the Social Security program compared to the relatively small benefit it provides each individual. I doubt anyone's life became easier due to this small increase in take home pay 
  • Its my money; it is OASDI...Its an insurance NOT a tax, but we know this in the industry. First thing I did in Jan 2011 was increase my 401k deduction by 2% and I have been preaching this to my clients and their employee over the past year...One way or another I am going to take care of ME first! 
  • The math just doesn't work for me. Social Security is underfunded and most people don't realize that is what the tax cut represents. At a time when fixing Social Security may be as simple as raising the rates by 1% - 2%, the government just continues to widen the gap. At least they have began to call it "tax" instead of an "entitlement" which would seem to be more accurate. 
  • All these tax cuts MUST be accompanied by spending cuts or we will go further into debt. Nobody would run their household this way. 
  • Not wild about the 'recapture' provision.... 
  • At some point, Americans will have to pay more of their income to maintain the Social Security program. We may as well pay a little more now rather than a whole lot more later. This is not the popular view so I'm pretty sure it won't happen. 
  • It doesn't make sense when there is a revenue/payout issue with SS to take away revenue stream from the fund. The federal government needs to scale back spending. 
  • We can't afford to extend it. 
  • The system is already taking in less money than it is paying out - so confirming its inability to be anything more than a tax/transfer paygo scheme. 
  • The SS system is heading toward big trouble so unless benefits are delayed or reduced lowering the funding is just passing the buck ... what else is new!! 
  • It's good in my pocket, I am not sure it is good for the social security program 
  • If given the option, I would drop out of the program. They can keep all the money they confiscated from me over the years and "deposited" into the so-called trust fund. You know, the one that has been looted by the politicians to spend on their current budgets. 

Verbatim (cont.) 

  • It's funny to me that this would even be a question. Anyone who thinks its a good idea to collect less revenue for government prorams is living in a dream world. And, anyone who thinks a 2% "raise" is enough to make a big difference for the average person hasn't been grocery shopping in quite awhile. 
  • Reform the tax code instead. 
  • We have enough problems closing the deficit without under funding social security. 
  • Yes, ANY tax cut is a good idea. 
  • This is a band aid action. A vote buying attempt that has many more hidden costs short and long term associated with it. The country is tired of this type of partisan solutions / games. It's time to unite and get our house in order 
  • with all the talk about the current shortfalls in the system's funding it just seems to add anothe burden to futre generations. 
  • It isn't even a question. Of course it's a good idea. 
  • This will only come back to bite us later when healthcare reform starts up in 2014. Then, we'll be looking at a massive increase in Social Security Tax to pay for this new "National Health Care"! You don't have to be a genius to figure it out - look at how much England and other countries with Nationalized healthcare pay in similar taxes. 
  • That sounds like it's going to negatively affect the senior population, which is never a good idea. Lots of them live on only SS, and it's small enough already. 
  • This is nothing but a self serving political move that only undermines the financial security of Social Security. It would be refreshing if both the Administration and Congress left such programs alone to run the way they were initially designed in and not to use them to further their political aspirations. 
  • Now would be the perfect time to move back to the 6.2% funding rate on a phased basis. At the end of each quarter in 2012, increase the rate by 0.5%, until we're back to 6.2% by 1/1/2013. Consumers get an extension on lower rates, but we get back to a rate that is closer to normal to fund the long-term funding needs of the Social Security System 
  • It seems that cutting the inflows into a plan that's turned cash flow negative isn't a good idea if you have any concern for the solvency of the system. 
It may be a necessary thing, but it's not good.

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