AARP to Congress: End the Social Security tax holiday
Source: MoneyWatch
(MoneyWatch) COMMMENTARY AARP recently released a statement declaring that Congress shouldn't extend the Social Security payroll tax holiday beyond the current year. Earlier this year, Congress extended through the end of the year the two-percent payroll tax reduction that went into effect in 2010. Congress originally described this tax reduction as a temporary measure to boost the economy.
This reduction saved working families about $1,000 per year in taxes; it was assumed that workers would spend this windfall, which would help boost the economy. But instead, many workers have used the windfall to reduce their debt and strengthen their personal balance sheets, a logical move from anyone's perspective.
AARP's position makes sense when you understand how this temporary tax reduction works and how Social Security is financed. The payroll tax holiday isn't supposed to impair Social Security's finances, so transfers are made from general revenues to the Social Security trust fund to make up the shortfall caused by the temporary tax reduction. By the end of 2012, these transfers will total more than $200 billion.
Since we're running a large deficit, this means we're borrowing even more money -- issuing more Treasury debt -- to fund this temporary tax reduction. The reality is that all citizens will end up paying more in the future for today's temporary tax holiday.
Read more: http://www.cbsnews.com/8301-500395_162-57429615/aarp-to-congress-end-the-social-security-tax-holiday/
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