Congratulations on winning a second term as President. Now that the election's over, some of the hardest work you've faced so far lies directly in front of you, and it simply can't wait any longer. The crisis I'm talking about is the fiscal cliff of tax increases and spending cuts slated to take effect at the beginning of next year.
With Congress having chosen to wait until after its members' campaigns to tackle these tough issues, your leadership will be more crucial than ever in driving the future direction of the country. Finding the right balance between fiscal responsibility and smart economic planning will be a challenge, but it's one you must overcome in order to complete the job you took on four years ago.
Millions of workers are urging you to extend the temporary reduction in Social Security payroll taxes that you first enacted two years ago. I know that extending the payroll tax holiday would draw criticism from those who argue that it endangers the nation's long-term financial future for the sake of more government spending. But it has to be done: It's been a successful way to get money into the hands of working families, many of whom badly need it to make ends meet.
It's a Tough Trade-off
Mr. President, no one envies you for the position you were thrown into when you first took office. Starting from a point where the economy was in a tailspin and confidence about America's future was at a multigenerational low, you've overseen a slow recovery that has left many people impatient for a faster pace of change.
Yet with the payroll tax holiday, you tied the benefits of government stimulus payments to earning income -- a concept frequently associated with your political opposition. You took what many call the most regressive tax in the nation and reduced its impact. And in giving the typical family earning $50,000 a $1,000 break, you boosted take-home pay in a direct and meaningful way without making anyone wait until the end of the year to claim the benefits on their tax returns.
It Was the Right Move Then and It's the Right One Now
Some, like my colleague Chuck Saletta, argue that the health of the Social Security system is too fragile to endure another year of the payroll tax cut. (Here, he lays out his argument for letting the payroll tax holiday expire.) However, when you transferred money from the General Fund into the Social Security fund, it became clear that you were concerned about the fragility of the system hundreds of millions of current and future retirees will rely on for a vital portion of their retirement income. That transfer of funds kept Social Security funding at the same level it would have been without the tax holiday. And on the flip side, using the payroll tax system to get money to workers as quickly and efficiently as possible helped avoid bureaucratic delays and other challenges that plagued past stimulus efforts.
Moreover, keeping the payroll tax holiday in place gives all working Americans the chance to decide for themselves what to do with the money they save. For some, making investments of the sort that Saletta recommends will help them reach a more secure financial future. But many others don't have the luxury of thinking that far ahead with their finances.
Giving everyone a choice will help make sure that the economy gets a current shot in the arm while giving Americans the flexibility to save for retirement in whatever way they see fit.
In the long run, restoring payroll taxes to their former level may well be the best way to ensure the long-term financial viability of the nation, and setting the stage for that eventual tax increase further down the road makes sense. For now, though, the better choice is to work with Congress to make sure the benefits of the payroll tax holiday aren't yanked away at the worst possible moment.
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