The tax deal will hurt Social Security

How significantly does the drop in the payroll tax change Social Security math? Pretty significantly. The deal on the table is to cut what employees pay in payroll tax by two percentage points, to 4.2% from 6.2%. According to Dean Baker, who is the co-director of the liberal think tank the Center for Economic and Policy Research and opposes the tax deal, that 2% drop if made permanent, as some fear it will be, be would mean that Social Security could drain its trust fund and go on life support as early as 2020. That means Washington which usually looks a decade out when devising the budget would have to start dealing with the problem of what to do with Social Security pretty much immediately…

The good news is that it is probably time, as my colleague Michael Crowley pointed out a few weeks ago, that we tackle these sacred cows. There are better ways to tax people. And there are probably better ways to distribute federal dollars to the elderly than our current system. Alicia Munnell, who runs the Boston College Center for Retirement Research and regularly defends the need for Social Security, says the fact that we are using the federal retirement safety program to produce stimulus “muddies the water” of the debate. But even supporters of the system like Munnell say it is time to sit down and try to fix Social Security. Another benefit of the tax deal may force us to do just that much sooner than we had thought.