Extending the Payroll Tax Cut: A Vote to Eliminate Social Security As We Know It
By Randall Holcombe • Thursday December 22, 2011 12:54 PM PDT • 11 Comments
The current debate with Congress and the president about extending the Social Security payroll tax cut appears to be about taxes, but taking a longer view, that is a small part of what is being considered.
The Social Security program has been based on the premise that it works like a pension program. Workers pay in to the program when they are working, and then collect pension benefits when they retire. Retirees are entitled to those benefits because they paid for them through the payroll tax when they were working.
Despite the fact that the Social Security program is run like a Ponzi scheme, the entitlement aspect of the program is difficult to argue against. Workers have been told all their lives that in exchange for paying the payroll tax, they are entitled to retirement benefits.
The payroll tax cut severs that link. The payroll tax has been cut in half, and the difference is being made up from general revenues. Workers can no longer say they paid their taxes and are entitled to their benefits, because half of those taxes are now coming from general revenues, just like any other entitlement program.
If the payroll tax cut is temporary, the link between taxes and benefits will remain. But for every year the payroll tax cut is in effect the link becomes more tenuous, and if the tax cut is made permanent, the link will be gone. Seniors will no longer be able to say they are entitled to benefits because they paid for them through payroll taxes.
The real debate not over whether keep a tax cut, it is whether to continue the transformation of the Social Security program from a pension program into a means-tested welfare program.
Tags: Budget and Tax Policy, Economics, Insurance, Nanny State, Politics, Social Security, Taxation, The State, Welfare 
If Social Security is a pension plan and entitlement plan – then so are other pension plans. You pay in and collect you retire.
However, we pay way more in than what we get when we retire...with Social Security.
Linda R | Dec 22, 2011 | Reply
I don’t understand where you think the link is broken. Workers are tax payers and part of the general revenue created by everything we work for buy, sell, do everyday. So the link is continued unless a person lives in a cave and does absolutely nothing everyday. I mean we are taxed for everything we do in our adult life, everyday, that’s the general revenue fund. Created by people who work and pay taxes.
The part that needs to be changed is for people that have never paid into it, and are on supplemental. I know people who get it because their druggies or alcoholic and can’t funtion properly. Never paid a penny into it, but they are recieving from it. THAT’S wrong.
Clifford Anderson | Dec 22, 2011 | Reply
Social Security was “mandatory withholding” for all taxpayer workers below the age of 65. Like a Ponzi scheme Congress and presidents have “stolen future retirees account money for decades”. Ironically their own retirements did not come from this plan so it was easy to steal this money and use it for various youth entitlement programs. Many constituents thought there was nothing wrong was this “corruption and theft from social security until they neared retirement”! They believe in the congress. They believe in the office of the president. Now we see that Bernie Madoff and Martha Stewart’s crime was “pale in comparison”!
David Templeton | Dec 23, 2011 | Reply
Actually, Linda, it is just the opposite. Most people get more in Socialist Security than they were forced to pay into it.
http://money.usnews.com/money/blogs/planning-to-retire/2011/01/06/will-you-get-back-your-social-security-taxes-in-retirement
It was that way from the very beginning. The first recipient of FDR’s version of Bismark’s socialist plan was Ida May Fuller who paid in a grand total of $24.75 and then upon retirement received monthly SS checks totaling $22,888.92.
http://www.ssa.gov/history/briefhistory3.html#idamay
Paul | Dec 23, 2011 | Reply
Social Security is and has long been a welfare program coupled with a tax. No one has a “right” to Social Security benefits because they must be financed through the immoral confiscation of money from others. Those who were forced to pay Social Security taxes, like those who were forced to pay income taxes, those jailed for victimless crimes, those regulated out of their rightful property and livelihoods, and those bombed in wars, are victims of the state, and of course we must sympathize with them, but there is no moral case for taxing anyone to pay for Social Security. Two wrongs don’t make a right. Retirees have a moral claim to government property, as do many others, but the payroll tax should be abolished immediately for the same moral reasons that all taxes should be abolished.
Anthony Gregory | Dec 23, 2011 | Reply
Yes, one may collect a higher number of dollars through SS while retired, than they paid in while working. However, there is a huge disconnect between the amount of dollars and the purchasing power of those dollars. I might have paid $20 in 1980 and gotten $30 back in 2010, but that $20 in 1970 could have bought a whole lot more than that $30 in 2010. They’re fooling you with arbitrary numbers while inflation is f***ing you from behind.
Rick | Dec 27, 2011 | Reply
If that is the case, just pay back all the money we paid in for the last 40-50 years and then the youth of today can fend for themselves instead of using SS to supplement their retirement. Companies do not have retirement plans anymore and I am sure they can save and invest for their own future. Since investment really ties back to capitalism, which they preach against, they may just have to work until they die.
Carlton Cummins | Dec 27, 2011 | Reply
Socialist Security as a “pension plan” was always a gross lie.....
Heck, it really isn’t even a “Ponzi scheme” since in the sense that the so-called “trust fund” is a totally fictitious accounting trick anyways.....
Socialist Security has always been paid out of general revenues therefore its a straight out welfare program!
Yep Socialist Security is “Welfare for Being Old” that is paid by the young workers
Yep Medicare is “Medical Welfare/Government Run HC for the Old” that is paid by young workers
I would also like to bring to the attention of all a gross error by one of the other commentators: As of this year, the average Social Security recipient gets back ALL (i.e., his or her lifetime payment) of payroll taxes in Socialist Security checks in about 3.5 years – after that its all welfare gravy underwritten by younger workers.
Clearly we need to first state the truth about what we are dealing with here before we can ever hope to come to any solutions to fix this train wreck.
Wylie E Coyote | Dec 27, 2011 | Reply
You are wrong to argue that Social Security before the payroll tax cuts was distinct from other entitlement programs for reasons that I explained here:
http://stefanmikarlsson.blogspot.com/2011/12/payroll-tax-cut-doesnt-alter-social.html
Stefan Karlsson | Dec 28, 2011 | Reply
Hey, Medicaid and SS are a 50-50 proposition between you and your employers. You pay half, they pay half. It does not come out of withholding tax. It is not an entitlement nor welfare; it is your money. Do I want to pay 2% more? Hell no. Consider saving 15% of your lifetime income invested in modest growth funds. I do believe that you will live very nicely for the stated 3.5 years.
falconrt | Dec 29, 2011 | Reply
I don’t think that the “link” is necessarily broken with these tax cuts. They’re actually doing more good right now I think, than they would in the future.
Claire, e-PayDay Pty Ltd | Jul 17, 2012 | Reply