Obama: Congress should work through Christmas to extend Social Security revenue cuts

President Obama announced a 17-day long vacation to Hawaii for the holidays while almost simultaneously telling Congress to keep working through the break to pass an extension of the current Social Security revenue cut.

Obama has been pushing for Congress to extend the Social Security revenue cut and increase the length of time Americans can be given unemployment insurance – which is currently at almost 2 years. Republicans have counter-offered to do so if the increased spending and reduced revenue can be offset by spending cuts.

The president said, “Both parties came together to cut payroll taxes for the typical middle-class family by about $1,000, but that tax cut is set to expire at the end of this month.” To keep that from happening Congress will need to pass legislation to extend the cut. “We’re going to keep pushing Congress to make this happen,” Obama said. “They shouldn’t go home for the holidays until they get this done.”

Congressional Republicans are concerned that the cuts, if not offset, will continue to drain Social Security of the revenue needed to keep the program going. House Republicans have rebuffed the 2% revenue hit to Social Security saying that it could cost as much as $120 billion to the programs balance sheets[1].

The payroll tax that has been cut directly affects Social Security. The tax cut that Obama wants extended is a direct 2% cut to the  Social Security portion of payroll taxes.

Friday morning, House Speaker John Boehner and GOP leaders proposed a legislative package to their members. The bill contained an extension of unemployment benefits, a one year extension of the Social Security revenue cut, a 2-3 year pay freeze for all federal employees – including Congress, language to make it easier for the Keystone XL pipeline to get approved and a directive to the EPA to hold off on boiler/incinerator regulations.

The federal pay freeze is expected to save almost $100 billion but those savings would be to the overall deficit. It would not replace the missing revenue that Social Security would receive had Obama not demanded the payroll tax cuts be extended.

The current Social Security revenue cut has had little effect on the economy and jobs. As the cut is only to the employee’s share of the Social Security tax, employers have seen no reduction in tax liability. There is also historical proof that such short-term, temporary cuts don’t stimulate the economy – at all

..economic theory and the experience with tax rebates in 2001 and 2008 tell us that people are strongly inclined to save temporary increases in income. People only increase their spending when they perceive an increase in their permanent income.[2]

While the President has demanded the extension of the Social Security revenue cut, his leadership on the issue is questionable. While telling Congress to work through the holidays if necessary – Obama is planning a lavish, 17-day holiday vacation to Hawaii – after having been there just two weeks ago.

Sources:
[1] Businessweek – https://www.businessweek.com/ap/financialnews/D9RCGFU81.htm
[2] NYT Economix Blog – https://economix.blogs.nytimes.com/2011/08/30/the-case-against-a-payroll-tax-cut/