One of the interesting aspects of the “framework” announced by Obama to prevent marginal income tax increases on anyone is that part of the quid pro quo demanded by Obama was a one-year 2% drop in the portion of social security (FICA) taxes paid by employees (the portion paid by employers remains the same).
Prior to the 2008 election I noted that Obama’s proposal at the time to issue “refund” checks to people who pay no income taxes as a rebate of FICA payments amounted to a double-dipping, since wage earners would get a refund of their FICA payments but still would receive the benefits. I noted again after the election:
Equally important, Obama’s plan changes the very nature of social security. No longer will social security be a system in which workers contribute now in order to “get back” the contributions at retirement. For a large percentage of the population, there will be no real contribution to the social security system; those contributions will have been “refunded” through “income tax credits” long ago.
The “tax deal” follows through, in a very limited and temporary way, on Obama’s goal of FICA rebates to wage earners without a corresponding change in benefits.
We have maintained the myth for several decades that FICA payments actually exist in a social security trust fund. I say this is a myth because in fact the money is lent to the government for general budget purposes and in return the trust fund receives promises to repay the loans. At the end of the day, the social security trust fund is only as good as the government’s general ability to pay, which is endless because the government always can print more money. The result of printing more money out of necessity would be inflation.
The current tax holiday for a portion of employee FICA payments is another step in divorcing employee payments from employee benefits. Employee payments into the system will be reduced, but benefits will not be reduced as a result.
Richard Eskow of the left-wing Campaign for America’s Future, writing at HuffPo, picks up on this point, Obama’s “Tax Holiday”: A Poison Pill for Social Security, but few others in the Democratic base have noticed. Perhaps they are still reeling from the beating over the head Obama delivered at his press conference yesterday.
FICA increasingly is being treated as just another tax, and social security benefits as just another government entitlement, to be toyed with as political necessity requires.