The payroll tax cut Congress passed last week is supposed to save working families with a $50,000 annual household income an estimated $1,000 a year. That's about $20 a week in the pockets of some people for whom it will probably make a small difference.
The problem is that this tax cut with the sexy name -- “Middle Class Tax Relief and Job Creation Act of 2012” -- will come out of the money that workers contribute to Social Security. Over 10 months, this cut will put Social Security another $100 billion dollars in the hole -- a shortage that could make a big difference in the retirement planning of millions close to or at retirement.
Does that make sense?
Sen. Joe Manchin, a West Virginia Democrat who voted against this bill, said in a statement, “The so-called experts will tell you that Social Security will be all right because we’ll backfill the reduced contributions with revenue from our general fund, but let me remind you that these are the same experts who have steered us to more than $15 trillion in debt – which is growing by $5 billion every business day.”
If you believe that Social Security is already dead in the water, then cutting what we ask workers to contribute to it as soon as possible makes sense. But if you study up on Social Security, you'll see there are many more reasons to continue it than there are to eliminate it.
- Without Social Security, 42 percent of people older than 65 and the disabled would be poor.
- Social Security is progressive. A low-wage earner gets a Social Security payment that is equal to about 80 percent of his pre-retirement earnings; an average wage earner gets Social Security equal to about 44 percent of his pre-retirement earnings; a high wage earner gets Social Security that is not more than 25 percent of his pre-retirement earnings.
- Social Security is efficient. It spends about 1 percent of what it takes in on administration. Even if you are a very savvy investor of your own money, you have to work hard to find investments that cost that or less. Certainly, most 401(k) funds don't.
Boomers are voters with the power to make Congress think twice before passing anymore bills that threaten our retirement security. Speak up. Don't let Congress buy votes with Social Security.