Temporary Payroll Tax Reduction Must Not Drain Social Security Trust Fund

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There is a need to improve the tax compromise that the President reached with Congressional Republicans. Any temporary reduction in payroll taxes must be offset by future tax increases to ensure the continued solvency of Social Security.  We cannot wait for some future Congressional action to save Social Security.  The bill being drafted this week needs to include language to raise in future the revenues lost in the coming year because of the temporary payroll tax reduction.

There are several ways to do this.  One way is to raise the cap on annual earnings to which the payroll tax applies.

Another way would be to have a doughnut hole of earnings that would be exempt from payroll taxes, and then any earnings above the upper limit would be subject to payroll taxes.

A third way would be to make dividends subject to the same tax rate as payroll taxes, and specify that those taxes would go to the Social Security Trust Fund.  This would recover taxes from owners of closely held companies, like Linda McMahon, who pay themselves in dividends instead of salary.

Erskine Bowles and Alan Simpson, co-chairs of the National commission on Fiscal Responsibility and Reform (Deficit Reduction Commission), have acknowledged the need to restore the Social Security Trust Fund after a temporary payroll tax reduction.  Your Senator or Congressman can use that as the basis for including an amendment to the current tax bill that ensures that the Social Security Trust Fund is not depleted by this bill.

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One Response to “Temporary Payroll Tax Reduction Must Not Drain Social Security Trust Fund”

  1. Harvey Bellin Says:

    Three very good ideas.

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