How Payroll Tax Cut Affects Social Security's Future President Obama says that unless a temporary payroll tax cut is extended this month, 160 million Americans would see their taxes increase. But there's concern on both sides of the political aisle that the payroll tax holiday might be undermining the solvency of Social Security.
NPR logo

How Payroll Tax Cut Affects Social Security's Future

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
How Payroll Tax Cut Affects Social Security's Future

How Payroll Tax Cut Affects Social Security's Future

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


You just heard Scott mention the tax-cut battle facing the president. Mr. Obama told the audience in Osawatomie that unless Congress extends a temporary payroll tax holiday, 160 million Americans will see their taxes go up next year, by an average of a thousand dollars.

But as NPR's David Welna reports, there is concern the tax cut may be undermining the solvency of Social Security.

DAVID WELNA, BYLINE: Fact number one: Last year, for the first time in its 75-year history, Social Security took in less money than it paid out. Fact number two: This year, the first of the baby boomers reached retirement age and began collecting Social Security benefits. Fact number three: The payroll tax holiday that Congress approved a year ago reduced Social Security's revenues this year by $105 billion.

President Obama showed no sign of being troubled by those facts when he popped into the White House briefing room earlier this week, and called on Congress to extend the payroll tax cut for another year.

PRESIDENT BARACK OBAMA: It will help families pay their bills; it will spur spending; it will spur hiring; and it's the right thing to do.

WELNA: Republicans on Capitol Hill might disagree. Even though they do not think other tax cuts should be paid for, they make an exception when it comes to Social Security. Lamar Alexander is the Senate's number three Republican.

SEN. LAMAR ALEXANDER: Getting rid of the way we fund Social Security through the payroll tax is a dangerous idea. Taking money from Social Security funding is a long-term raid on solvency of Social Security.

WELNA: It's not just Republicans raising red flags about Social Security. Bernie Sanders is a Vermont independent who caucuses with Senate Democrats. He says he agrees with President Obama that middle-class families and the working poor need tax relief to weather tough economic times.

SEN. BERNIE SANDERS: My concern is diverting hundreds of billions of dollars from the Social Security trust fund into that immediate tax relief. So I would love to see tax relief, but done in a different way.

CHARLES BLAHOUS: I think it's a far greater danger than most people anticipate.

WELNA: That's Charles Blahous, whom President Obama appointed last year to be one of the six trustees of Social Security and Medicare. Blahous says the payroll tax break may be harming Social Security's long-term solvency.

BLAHOUS: I mean, I'm a Republican and I'm a conservative, and if you were to ask me to - first approximation - do I want lower taxes or higher taxes? Then obviously, I want lower taxes. The problem here is that I'm also a public Social Security trustee, and so I'm honor-bound to identify when this causes a change or a difficulty for the Social Security program - which it does.

WELNA: And that's because the Social Security program has long been considered self-financing and thus, politically immune from budget cuts. But that could change, Blahous says, now that employees are no longer paying their full share into Social Security due to the payroll tax holiday.

BLAHOUS: This could be the beginning of the end of the idea that this is an earned benefit, where benefits enjoy a certain amount of political protection because of the notion that they have been paid for in the past by the beneficiaries.

WELNA: There's anxiety among Democrats as well about the prospect of prolonging the payroll tax cut. Nancy Altman is co-director of Social Security Works, a Washington-based advocacy group. Altman says she's been alarmed to see a Democratic administration dipping into Social Security's revenue stream to stimulate the economy.

NANCY ALTMAN: Democrats have - were the ones that created Social Security, and the ones that were the strongest champions over its 76 years. So to have a Democratic president proposing to undo the dedicated revenue - and even though it's being substituted general revenue - it's a fundamental change that supporters of the program, I think, should oppose.

WELNA: Altman worries the payroll tax cut has become so popular, it will be hard to end it. That's one reason why she opposed it in the first place.

ALTMAN: Many of us, at the time, said that it's no way this is just going to last one year. And sure enough, we're back now, talking about expanding it.

WELNA: Some lawmakers do say the tax break is worrisome, including Rhode Island Democratic Senator Sheldon Whitehouse.

SEN. SHELDON WHITEHOUSE: I think one more year is - should be about the limit.

WELNA: And why?

WHITEHOUSE: Because of the nature of Social Security.

WELNA: A program that until now, has always paid its way.

David Welna, NPR news, the Capitol.



Copyright © 2011 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.