AARP: Please, let payroll taxes go up

October 18, 2012

The AARP thinks it's time for American taxpayers to pony up. 


(Source: WaPo)

The advocacy group for seniors opposes any further extension of the Social Security payroll tax holiday,  which is scheduled to expire on Dec. 31, when the rest of the fiscal cliff goes into effect. The tax cut was originally part of a 2010 deal to replace the stimulus' expiring Making Work Pay Tax cut with a payroll tax cut of two percentage points. Lawmakers extended the tax break by another year, with largely enthusiastic support from Democrats and more reluctant support from Republicans, to continue to support a flagging economy. 

Recently, some leading voices have called for yet another extension: Former Treasury secretary Larry Summers warned last week that "this is not the right moment to repeal the payroll tax cut," arguing that there would be a "great stagnation" ahead for the U.S. economy if there wasn't more done to boost growth. The expiration of the tax cut will mean a $1,000 hit for the average taxpayer, and unlike many other tax provisions of the fiscal cliff, it will hit ordinary Americans immediately when they get their paychecks in January 2013 if it isn't extended.

David Certner, AARP's legislative policy director, said that more should be done to support an economy that he acknowledged is "still rocky." The group simply does not want to sacrifice the Social Security Trust Fund to do it, arguing that it will risk underfunding a revenue stream that's projected to be "depleted within the next 25 years," according to the Social Security Administration.

When Congress agreed to extend payroll taxes by another year in 2011, it did so by replacing the lost funds with general revenue for the first time in history. That addressed some policymakers' concerns about the Social Security Trust Fund's insolvency. But it was a worrisome step for the AARP and other Social Security advocates, who believed it undermined the entitlement program's protected status, lumping it in with a general budget  that could be subject to future cuts and trade-offs. "Social Security is a separate, off-budget program, with a dedicated funding source—messing with the formula shouldn't even be a part of the budget debate," Certner added. "The promise of this was that it would be temporary. Going beyond two years—you're going way beyond temporary country."

As the fiscal cliff approaches, the AARP is ramping up its advocacy efforts to ensure that the payroll tax cuts don't go beyond Dec. 31, with a letter to Congress in the pipeline. At this point, the AARP is most concerned that a payroll tax extension could get tied up with the rest of the fiscal cliff: If Congress can't make a deal by Dec. 31 and decides to punt, the tax cut could simply get temporarily extended along with everything else, which the AARP believes is a bad precedent to set. "We want to make certain this doesn't get brought along for the ride," Certner said. 

That said, the group is heartened that Summers' support for another extension remains an outlier: Leading Democrats in the White House and Congress who pushed for an extension last year now say that it's time for the tax cut to end. "You don't hear anybody on the Hill clamoring for an extension, that gives us some hope," said Certner.

Update: The AARP submitted its letter lobbying against another payroll tax extension to the White House, Senate, and House this morning, arguing that it would "undermine confidence in Social Security and put at risk the program’s dedicated funding stream and the hard-earned benefits of millions of Americans and their families." 

What's more, the group suggests that another holiday might not be necessary given the improvement in the unemployment rate and recent ISM report describing positive changes in manufacturing. "While many Americans continue to struggle and our economy still has much room to improve, AARP is encouraged by recent economic indicators that point to a strengthening recovery."

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