FICA: President Barack Obama Seemingly Is Using the Payroll Tax Cut as a Way to Weaken Support for FICA-Funded Programs; President Should Use General Funds to Provide Needed Economic-Crisis Assistance

President Barack Obama’s proposal to extend the Federal Insurance Contributions Act (FICA) tax cut harms the idea that FICA is a special-purpose tax to fund Social Security and Medicare. I feared the President’s proposal last year, knowing that his further proposals to extend would happen. Currently, the Congress requires the Treasury to arrange for an equivalent amount of cash to go to FICA-funded programs, which makes up for the “loss” due to the FICA tax cut. [P.L. 111-312, sec. 601(e)]. This tax cut seems to be a neat way of having the increase (not much ($934 on yearly average)) of cash to the citizenry, while having the Treasury ensure that the contributions to the FICA-funded programs are not reduced.

However, what the President has done is introduce the idea that the FICA tax is not a special-purpose tax for Medicare and Social Security, but rather the notion that FICA can be used for general current-revenue purposes. This change is subtle but very dangerous. While the current President can be said to support Social Security and Medicare, this very same FICA tax cut could be used to force cuts or substantially change both programs (by a future President who can be said to be opposed to FICA-funded programs). Therefore, I became seriously concerned when the so-called Democratic President used a GOP talking point to attempt to shame GOP congressional members to support an extension of the FICA tax cut (emphasis below mine).

Pass this jobs bill, and the typical working family will get a $1,500 tax cut next year.  Fifteen hundred dollars that would have been taken out of your pocket will go into your pocket.  This expands on the tax cut that Democrats and Republicans already passed for this year.  If we allow that tax cut to expire — if we refuse to act — middle-class families will get hit with a tax increase at the worst possible time.  We can’t let that happen.  I know that some of you have sworn oaths to never raise any taxes on anyone for as long as you live.  Now is not the time to carve out an exception and raise middle-class taxes, which is why you should pass this bill right away.  (Applause.)

The President is seemingly using the economic crisis as a way to begin the process of breaking the overwhelming popular support of the FICA-funded programs. The issue that some wealthy politicians face is the enduring support of FICA-funded programs. Because of how the U.S. manages its cash–using FICA funds in general revenues and issuing a nonmarketable Treasury bond (a promise to repay) in exchange for the cash–general revenues that are artificially low (due to the FICA borrowing) will have to be increased in order to pay the bonds redeemed by FICA-funded programs when the number of beneficiaries exceeds the proceeds collected from the FICA tax.

The President, when he deals with FICA-funded programs, must be carefully observed.

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