Skip Navigation

Close and don't show again.

Your browser is out of date.

You may not get the full experience here on National Journal.

Please upgrade your browser to any of the following supported browsers:

Who Killed Social Security? Who Killed Social Security?

This ad will end in seconds
Close X

Want access to this content? Learn More »

Forget Your Password?

Don't have an account? Register »

Reveal Navigation



Who Killed Social Security?

The legendary program is dying from a thousand cuts—not least of all the proposed payroll-tax cut.


Worried: Recipients rally.(Justin Sullivan/Getty Images)

Rick Perry yells “Ponzi scheme” and “monstrous lie.” Mitt Romney comes unglued, proclaiming, “Social Security has worked for 75 years pretty darn well.”

Perry wonders if Social Security is constitutional when that question was authoritatively settled in the Supreme Court’s 1937 ruling in Helvering v Davis. No matter. Romney accuses Perry of harsh and reckless attacks on Social Security, even though he has described the underlying financing mechanism as criminal.


This is what passes for a substantive debate among the top challengers for the GOP presidential nomination.

The question isn’t whether the term Ponzi scheme is or is not valid. With regard to Social Security, no less an economic and intellectual light as Paul Samuelson used the term in Newsweek in 1967 (look it up). Samuelson defended the Ponzi-like aspects of Social Security, arguing that perpetual generations of workers paying payroll taxes would meet the program’s benefit obligations. But generations haven’t overlapped in similar sizes. The oft-noted declining number of workers in relation to beneficiaries raises obvious questions about Social Security’s long-term financing. In fact, one of the White House’s favorite avatars of fiscal rectitude, former Republican Sen. Alan Simpson of Wyoming, co-chairman of President Obama’s deficit and debt commission, labeled Social Security a “Ponzi scheme” in 1996.

But there is something new, so new it has virtually escaped notice. It’s the silent, stealthy erosion of Social Security’s long-term financial health—carried out once already through one payroll-tax cut with congressional and presidential complicity. In pursuit of more job creation (despite the mixed record so far—see the jobless rate), the White House has asked Congress to dramatically increase the scope of the payroll-tax cuts. While the focus is purportedly on jobs, what’s glaringly missing is a clear-eyed debate about the long-term impact of payroll-tax cuts on Social Security’s financial health. About this, virtually nothing is being said. Instead, all of the talk is about whether Warren Buffett’s eponymous tax increase has a better chance in Congress than Nancy Grace has of making it to the semifinals of Dancing With the Stars. (The chances for both are equally dismal.)


What’s eating at Social Security? Payroll-tax cuts. In the lame-duck session, the employee’s share of Social Security payroll taxes was cut from 6.2 percent to 4.2 percent. That deprived the Social Security trust fund of $105 billion. The enacting legislation required general-fund revenue to be paid into the trust fund to fill the hole created by the payroll-tax cut.

In Obama’s newest job proposal, payroll-tax cuts would be even deeper: The employee share for 2011 would drop from 4.2 percent to 3.1 percent and the employer share would drop from 6.2 percent to 3.1 percent on taxes paid in 2012 (a break that would apply to more workers if wages are raised or jobs are created that year). These proposed cuts would reduce payroll-tax revenues by $240 billion but, again, be backfilled by general revenue. “As with the payroll-tax cut passed in December 2010, the American Jobs Act will specify that Social Security will still receive every dollar it would have gotten otherwise,” the White House said.

Set aside, for a moment, whether Congress will pass Obama’s proposed tax increase that reduces the deductibility of charitable contributions from the wealthy (Democrats who ran things in the 111th Congress rejected this idea). The far bigger question is whether Congress should, as a matter of policy, tap general revenues to finance Social Security.

Why does this matter? Because payroll taxes at least present the illusion of a defined revenue stream for Social Security benefits. Yes, it’s true that Social Security will run a $150 billion deficit this year when payroll tax receipts are compared to benefits provided. But the trust fund still has a balance of $2.6 trillion, a balance made up of promises to pay future benefits backed up by bonds purchased for that purpose.


When Congress siphons off payroll-tax revenue to stimulate economic growth, it is pumping money into the economy without accounting for the cost of financing the bonds needed to meet Social Security payment benefits later. When Social Security receives “every dollar it would have gotten otherwise,” it either takes those dollars in the form of less spending on other federal programs, higher taxes, or greater debt. In other words, Social Security is no longer fenced off.  It then becomes something its creators never, ever intended: another government program scrambling for money, leverage, and clout.

For some perspective, let us turn to President Franklin Delano Roosevelt, who said this about the payroll-tax pipeline: “We put those payroll contributions in there so as to give the contributors a legal, moral, and political right to collect their pensions. With those taxes in there, no damn politician can ever scrap my Social Security program.”

Ever is a long time. And the scrapping of Social Security is occurring faster than ever, right before our unobserving eyes. 

This article appears in the September 21, 2011 edition of NJ Daily.

Don't Miss Today's Top Stories


Rick, Executive Director for Policy

Concise coverage of everything I wish I had hours to read about."

Chuck, Graduate Student

The day's action in one quick read."

Stacy, Director of Communications

I find them informative and appreciate the daily news updates and enjoy the humor as well."

Richard, VP of Government Affairs

Chock full of usable information on today's issues. "

Michael, Executive Director

Sign up form for the newsletter
comments powered by Disqus