…unlike the debt-ceiling drama and the destructive impasse over a grand bargain to rein in the spiraling national debt, a stalemate on the payroll tax could be good for Social Security, good for the deficit, and good for disproving the conviction that “temporary” tax cuts must never be allowed to expire.
Let us explain.
As we’ve pointed out previously, the 2-percentage-point cut in the payroll tax (from 6.2% to 4.2%) might give a short-term boost to the economy, but it contributes to Social Security’s long-term insolvency at a time when the retirement program is already paying out more in benefits than it is collecting in taxes. A one-year extension would drive up next year’s federal deficit by more than $100 billion.
The payroll tax issue also raises the question of whether there’s any such thing as a temporary tax cut. At the end of next year, the unaffordable Bush tax cuts are set to expire. Extending the payroll tax cut would set a precedent and give ammunition to those who want another extension of the Bush cuts, adding as much as $5 trillion to deficits over the coming decade.