How Payroll Tax Cut Affects Social Security's Future

By:  David Welna

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President Obama put Congress on notice Tuesday in a speech in Osawatomie, Kan.

He said that unless a temporary payroll tax cut is extended this month, 160 million Americans would see their taxes go up next year by an average of $1,000. But there's concern on both sides of the political aisle that the payroll tax holiday might be undermining the solvency of Social Security.

Fact No. 1: Last year, for the first time in its 75-year history, Social Security took in less money than it paid out. Fact No. 2: This year, the first of the baby boomers reached retirement age and began collecting Social Security benefits. Fact No. 3: The payroll tax holiday that Congress approved a year ago reduced Social Security's revenues this year by $145 billion.

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.

"It will help families pay their bills, it will spur spending, it will spur hiring and it's the right thing to do," Obama said.

Republicans on Capitol Hill might disagree. Although they do not think other tax cuts should be paid for, they make an exception when it comes to Social Security.

"Getting rid of the way we fund Social Security through the payroll tax is a dangerous idea," says Lamar Alexander, the Senate's No. 3 Republican. "Taking money from Social Security funding is a long-term raid on solvency of Social Security."

It's not just Republicans raising red flags about Social Security, either. Bernie Sanders, the Vermont Independent who caucuses with Senate Democrats, says he agrees with Obama that middle class families and the working poor need tax relief to weather tough economic times.

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

- Sen. Bernie Sanders, I-Vt.

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

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