WASHINGTON -- President Barack Obama isn't talking about it and
neither is Mitt Romney. But come January, 163 million workers can expect
to feel the pinch of a big tax increase regardless of who wins the
election.
A temporary reduction in Social Security payroll taxes
expires at the end of the year and hardly anyone in Washington is
pushing to extend it. Neither Obama nor Romney has proposed an
extension, and it probably wouldn't get through Congress anyway, with
lawmakers in both parties down on the idea.
Even Republicans who
have sworn off tax increases have little appetite to prevent one that
will cost a typical worker about $1,000 a year, and two-earner family
with six-figure incomes as much as $4,500.
Before he was named as
Romney's running mate, Rep. Paul Ryan, R-Wis., disparaged the payroll
tax cut, calling it "sugar-high economics" that wouldn't promote
long-term growth.
Social Security is funded by a 12.4% tax on
wages up to $110,100, rising to $113,700 in 2013. Half is paid by
employers and the other half is paid by workers. For 2011 and 2012,
Congress and Obama cut the share paid by workers from 6.2% to 4.2%.
A worker making $50,000 saved $1,000 a year, or a little more than $19 a week. A worker making $100,000 saved $2,000 a year.
The
beauty of the tax cut is that is shows up in weekly paychecks, giving
workers more money to spend or save. The downside is that some workers
may not have noticed a $19-a-week increase in pay, making them unlikely
to credit the politicians who made it happen.
As the tax cut
expiration approaches, Republicans question whether it has done much the
past two stimulate the sluggish economy. Politicians from both parties
say they are concerned that it threatens the independent revenue stream
that funds Social Security.
They are backed by powerful advocates for seniors, including AARP, who adamantly oppose any extension.
"The
payroll tax holiday was intended to be temporary and there is strong
bipartisan support to let that tax provision expire," said Sen. Orrin of
Utah, the top Republican on the Senate Finance Committee. "The
continued extension of a temporary payroll tax holiday has serious
long-term implications for Social Security and, frankly, it's not even
clear that it has helped to boost our ailing economy."
The
question of renewing the payroll tax cut has been overshadowed by the
expiration of a much bigger package of tax cuts first enacted under
President George W. Bush. The Bush-era tax cuts also expire at the end
of the year, and Congress is expected to try to address them after the
election, in a lame-duck session.
The payroll tax cut could become
part of the mix in negotiations that could go in many directions. But
lawmakers in both political parties say they doubt it.
"There's a
growing consensus that Congress and the president can't continue to
divert such a critical revenue stream from Social Security," said Rep.
Kevin Brady of Texas, a senior Republican on the tax-writing House Ways
and Means Committee. "More and more Americans understand that that
payroll tax cut, while politically unappealing, is endangering Social
Security."
Under the law, Congress is reimbursing Social Security
for the lost revenue, estimated at $103 billion in 2011 and $112 billion
in 2012. But Congress didn't cut spending or raise other taxes to
offset the lost revenue, so the payroll tax cut is being financed with
borrowed money, adding to the national debt.
Democrats are more
willing to defend the tax cut, saying it helped prop up the economy
during a rough stretch while providing what amounted to a 2% pay
increase to millions of middle-income workers. But they, too, are
concerned about maintaining Social Security's source of revenue.
"I think people realize that was a temporary thing," said Sen. Mark Begich, D-Alaska.
Rep.
Richard Neal of Massachusetts, a senior Democrat on the Ways and Means
Committee, said he thinks there is evidence that the tax cut helped the
economy. But, he added, "I'm not sure that it met expectations."
House Democratic leader Nancy Pelosi of California said she, too, wants to let the tax cut expire.
Larry
Summers, Obama's former economic adviser, is a lonely voice in
Washington calling to extend the payroll tax cut. He said in a recent
speech that the economy is too fragile to reduce workers' incomes.
Obama
pushed for the tax cut in late 2010 as a way to increase workers'
take-home pay to help boost consumer spending and provide a spark for
the economy. Economists were divided on the economic benefits. Many said
it probably helped increase consumer spending but there was no
consensus on the magnitude.
The initial tax cut was for only a
year, and many Republicans in Congress wanted to let it lapse at the end
of 2011. But Obama and Democratic lawmakers successfully fought to
extend it through 2012.
Obama, however, didn't include the tax cut
in his 2013 budget proposal, and Treasury Secretary Timothy Geithner
told Congress this year that he saw no reason to extend it again.
White House spokeswoman Amy Brundage wouldn't rule out an extension but wouldn't commit to one, either.
"The
president fought extremely hard last year in the face of Republican
opposition to ensure that the payroll tax cut was extended," Brundage
said. "There are a number of tax issues that Congress will have to deal
with at the end of the year, this being one of them, and we will
continue to evaluate all of the options available to us at that time."
Romney's
campaign hammers Obama almost every day for proposing to let Bush-era
tax cuts expire for individuals making more than $200,000 and married
couples making more than $250,000. But Romney's tax plan would let the
payroll tax cut expire, an issue he doesn't mention on the stump.
Romney's campaign declined to discuss the issue.
Associated Press