Tax proposal worries Social Security allies

Associated Press

WASHINGTON

Some Social Security advocates fear that President Barack Obama’s desire to cut taxes supporting the program will undermine its vaunted stature as a self-financing pension system that provides checks to retirees based on contributions they made while working.

For now, though, the administration insists — and many experts agree — that the proposal would have no impact on the program’s financial soundness or ability to pay benefits averaging $1,077 a month to 55 million recipients.

Cutting Social Security taxes is the keystone of Obama’s $447 billion plan to create jobs and leave more cash in people’s pockets, an effort by the president to bolster the ailing economy and his own 2012 re-election prospects.

The payroll-tax cut — an enlargement of one already in effect this year — would take a $240 billion bite out of Social Security revenues in 2012. Obama would replenish the lost FICA (Federal Insurance Contribution Act) taxes with money from the overall federal budget — keeping Social Security whole but forcing the government to borrow more and further swelling the federal debt.

The problem with Obama’s proposal, critics say, is that propping up Social Security with general funds from the Treasury erodes its revered status as a self-funded insurance program in which payroll taxes collected from workers pay benefits for retirees, the disabled and their survivors. The proposal would put Social Security into competition for scarce federal dollars with other programs, leaving it more exposed to budget-cutters.

“As long as we could say it’s self-funded, we have the high ground” in defending the program from efforts to trim benefits, said Max Richtman, president of the nonprofit National Committee to Preserve Social Security and Medicare. “This will make it much harder to make this case.”