Payroll tax cut will NOT weaken trust funds
The 2 percentage point reduction in payroll taxes for railroad workers covered by Railroad Retirement, and bus and aviation workers covered by Social Security, will NOT have a negative impact on either the Railroad Retirement or Social Security trust funds, as has been wrongly alleged by some.
Beginning Jan. 1, all workers will see an increase in their paychecks as a result of Railroad Retirement and Social Security payroll taxes being cut from 6.2 percent to 4.2 percent. The purpose of the tax cut is to stimulate the economy through consumer spending that will snowball into increased demand for products and new hiring by employers.
For workers earning $50,000 annually, the additional take-home pay from the reduced payroll taxes will be some $1,000 in 2011. For those earning the maximum Social Security and Tier I Railroad Retirement taxable income, the additional take-home pay will top $2,000 in 2011.
The payroll tax deduction will NOT have a negative impact on the Railroad Retirement or Social Security trust funds because the legislation provides that the shortfall in the trust funds — as a result of the payroll tax cut — will be made up by a contribution to those funds from the U.S. Treasury’s General Fund.
The legislation is absolutely clear on this point. In Section 601(e) of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010,
it is stated:
“There are hereby appropriated to [the Social Security Trust Fund] amounts equal to the reduction in revenues to the Treasury by reason of the application of [the payroll tax cut].”
This was confirmed by the Railroad Retirement Board, which advises that the payroll tax-cut legislation “provides for the transfer of money from the general fund to the Social Security Equivalent Benefit Account, one of the trust funds from which the Railroad Retirement Board (RRB) pays benefits, in an amount equal to the revenue lost due to the reduced payroll tax rate.”
Separately, the Social Security systems chief actuary, in a Dec. 10 letter to Treasury Secretary Timothy Geithner, said, “The law specifies that Social Security will receive every dollar it would have gotten even without the payroll tax cut.”
And AARP Executive Vice President John Rother said in a press release that the payroll tax cut “has no financial impact on Social Security because the trust fund is made whole.”
Said President Obama in signing the legislation: “Social Security is a sacred compact that in return for a lifetime of hard work, America’s seniors will have a chance to retire with dignity. We have an obligation to keep that promise and safeguard and strengthen Social Security for seniors, people with disabilities and all Americans, both now and in the future.”