(Bloomberg News) Some Democratic lawmakers say that while President Barack Obama's plan to cut payroll taxes may strengthen the U.S. economy, it may have some unintended fallout: weakening Social Security.
The lawmakers and advocacy groups say they're concerned the tax cuts may undermine political support for the retirement program, which provides benefits to almost 55 million Americans and is funded by the payroll levies.
"I don't object to putting more money in people's pockets, and there are lots of ways to do that, but not with Social Security," said Representative Rush Holt of New Jersey, who said he'll have a hard time supporting the White House plan.
Should Congress fail to extend the break, set to expire in four weeks, millions of Americans will see their paychecks start shrinking in January. That would be a setback for the economy and could subtract 0.7 percentage point from economic growth, according to Mark Zandi, chief economist at Moody's Analytics.
Still, Obama's proposal comes amid growing concern about Social Security's finances. The program has begun spending more on benefits each year than it receives in payroll tax revenue and, starting in 2036, won't be able to pay full scheduled benefits, according to the trustees' latest report.
The system is funded by a 12.4 percent payroll tax equally divided between workers and employers. Congress cut the employee portion this year by 2 percentage points. Obama wants to reduce it further next year, to 3.1 percent, while offering the same rate to employers that take on new workers. The Social Security funding that's lost would be made up through general revenue.
Social Security advocates say they fear these cuts won't be the last. It may not be any easier for Congress to allow them to lapse next year, with the elections in November and the unemployment rate projected by the Congressional Budget Office to average 8.5 percent. Forcing the government to tap further into general revenue could lead to the kind of funding fights that Social Security has avoided until now.
Representative Jerrold Nadler, a New York Democrat, said he supports extending the payroll tax cut, though reluctantly.
"To take it away would be a body blow to the economy," said Nadler, who called the tax cut a "very bad" change in Social Security policy. So "we've got to live with it for another year or two." Massachusetts Democrat Barney Frank said that while he didn't like the tax cuts initially, it would be a "great mistake" not to continue them now.
Some critics of Obama's proposal say their wariness stems from Social Security's unique character. It was designed in 1935 by President Franklin Roosevelt to be an autonomous program that paid its own way through a dedicated tax.