Payroll Tax Cuts: Will They Bankrupt Social Security?

By Amy Bingham, ABCNews.com

The Democratic winds of high-income taxation are picking up and the Republican thunderheads of off-setting spending cuts are rolling in as Capitol Hill braces for yet another partisan thunderstorm.

This time the battle is over payroll taxes, which fund Social Security, and whether to end, extend or expand the 2 percent cut that is set to expire December 31.

The one-year cut to Social Security’s funding stream decreased federal revenues by $112 billion in 2011, but the already-dwindling trust fund for Social Security remained untouched because the government borrowed extra money to fill the gap, adding instead to the $1.3 trillion deficit.

“On paper [the payroll tax cut] does nothing to Social Security,” said Andrew Biggs, a resident scholar at the American Enterprise Institute. “It is just as solvent as it was before. But that’s not the sort of bookkeeping that you would do in the private sector.”

Senate Democrats want not only to extend the current tax break, but further reduce it from the original 6.2 percent to 3.1 percent. The Democrat’s proposal also cuts employers’ share of the payroll tax in half, down to 3.1 percent on the first $5 million paid in wages.

Congressional Republicans, who are wary of even extending the cut at its current 2 percent level, are unlikely to support the expanded cuts that Democrats are pushing for.

“The problem here is that the payroll tax doesn’t go into general revenue, it supports Social Security,” Senator Jon Kyl, R-Ariz., the No. 2 Republican in the Senate said on “Fox News Sunday.” “And you can’t keep extending the payroll tax holiday and have a secure Social Security.”

To read more, visit:  http://abcnews.go.com/blogs/politics/2011/11/payroll-tax-cuts-will-they-bankrupt-social-security/

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