Social Security Cut? 2012 Tax Cuts Could Hurt… A Lot

Posted on 14 September 2011

Social Security Cut? 2012 Tax Cuts Could Hurt… A Lot: Tax cuts sound like they’re a great thing in general, and with a presidential election coming up in 2012, there is no doubt that President Barack Obama wants to make sure that he gets into a favorable public light. His most recent plan that he hopes to push through might be a disaster though, as payroll tax cut might mean more money in your pocket now, but it might finally lead to that final Social Security cut we’ve all been dreading for a number of years.

The new Obama “Jobs Plan” would give a huge, huge break to both employees and employers alike. Currently, Congress passed a law for 2011 that reduced the deduction to employees for Social Security to 4.2% from 6.2%. Employers historically always had to match the deduction that came out of their employees’ paychecks, but they weren’t given the same tax break. Employers were still responsible for paying 6.2%.

The bill theoretically did exactly what it was intended to do. Employees all had an extra 2% added to their paychecks, and though that wasn’t clearly enough to turn the entire economy around, it certainly didn’t hurt any. However, now Obama wants to extend that tax cut even further, and he wants to extend it to the employers as well.

The “Jobs Plan” calls for employee deductions and employer payments down to 3.1% each, literally slashing the amount of money heading into the nation’s Social Security Trust Fund in half.

The total cost of the cuts is expected to be somewhere in the neck of the woods of $240 billion.

On the surface, this seems to be a plan that would put Obama back in office. Americans would get to keep their 2% tax break and inherit another 1.1% of a break with this law. The President has also ensured that Social Security will not be slashed to those who are already receiving Social Security benefits.

However, we have to look at the long term ramifications of this, both on a personal level and on a national level.

In the short run, the Social Security Fund is going to be depleted even faster than normal. There were only $544.8 billion in funding for Social Security last year, and the fund lost money hand over fist. With an approximately $112 billion coming into the fund in 2011 this year and $240 billion in 2012 and more people being added to Social Security than there are employees who are paying into the fund, there are more and more problems complicating a fund that is already running short.

The truth of the matter is that Obama really probably should be finding some way to help the Social Security Fund, not just ignore it. It seems as though it is a foregone conclusion that the day will come when the SSF is completed depleted, and with the country looking for so many other budget cuts to make to help keep the debt ceiling from rising, Social Security clearly won’t be around for that much longer.

However, in the long run, if Social Security is indeed saved, many in their 20s, 30s, and 40s can expect a heck of a lot less than they thought they were getting. The amount which you collect in Social Security is based upon the amount of the tax that you pay in. Theoretically, the less than you end up paying in now, the less that you’ll get later. Most aren’t thinking about this in the long run, but it is definitely something that needs to be considered when you’re planning for your own personal retirement.

Social Security tax cuts seem like a great idea, but at this point, we really need to think about what is best for the whole of the country and not all of us as individuals, and perhaps the nation is better served taking back that 2% instead of giving us just a slight amount of money per paycheck than it is costing all of us in the long run.

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