- Days left

Point: It's the Wrong Time to Raise Social Security Taxes, Mr. President

×
President Barack ObamaDear President Obama:

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.

With millions of people still seeing little or no benefit from the economic growth of the past few years, you've sought new ways to accelerate growth. Many of those steps, including the extension of the tax cuts enacted by your predecessor, weren't easy choices.

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.

For the latest Motley Fool research on Social Security, Medicare and your retirement, click here for access to a free video special report.

Increase your money and finance knowledge from home

Timing Your Spending

How to pay less by changing when you purchase.

View Course »

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

TurboTax Articles

Video: Who Qualifies for an Affordable Care Act Exemption (Obamacare)?

The Affordable Care Act requires all Americans to have health insurance or pay a tax penalty. But, who qualifies for an Affordable Care Act exemption? Find out more about who qualifies for an exemption from the Affordable Care Act tax penalty, how to claim an exemption on your tax return and how the Affordable Care Act may affect your taxes with this video from TurboTax.

Video: How to Claim the Affordable Care Act Premium Tax Credit (Obamacare)

The Affordable Care Act Premium Tax Credit is a new refundable tax credit that can lower your monthly health insurance premiums. If you qualify for the tax credit, you can claim the Premium Tax Credit throughout the year to lower your monthly health insurance premiums, or claim the credit with your tax return to either lower your overall tax bill or increase your tax refund.

Deducting Summer Camps and Daycare with the Child and Dependent Care Credit

If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age, you may qualify for a tax credit of up to up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children or dependents.

What Is Schedule H: Household Employment Taxes

If you hire people to do work around your house on a regular basis, they might be considered household employees. Being an employer comes with some responsibilities for paying and reporting employment taxes, which includes filing a Schedule H with your federal tax return. But even if you have household employees, filing Schedule H is required only if the total wages you pay them is more than certain threshold amounts specified by federal tax law.

Add a Comment

*0 / 3000 Character Maximum

172 Comments

Filter by:
gmydogbud

When might we expect to have OUR MONEY - returned to the Social Security Fund, that BOTH PARTIES - Have STOLEN - FROM - THOSE - ON - SOCIAL SECURITY? They took our money & replaced our money with IOU'S, now it is time for THEM - to PAY - US - BACK - !!!!

November 18 2012 at 9:53 AM Report abuse +2 rate up rate down Reply
mike.nesmith

December 11 is Financial Amnesty Day. If you have earned money and have any left over you may turn it back into the treasury department without ridicule from the democratic party.

November 15 2012 at 4:47 PM Report abuse rate up rate down Reply
billcac

Surprise, Surprise, the market is down again today. I guess the country was split down the middle this last election between the haves and the have-nots. Someday we'll all have nothing!

November 15 2012 at 1:39 PM Report abuse +2 rate up rate down Reply
1 reply to billcac's comment
bavaria12345678910

You are right!

November 17 2012 at 12:49 PM Report abuse rate up rate down Reply
freethedems2012

People say the rich should pay more into SS. That may be but won't they be able to collect more when they retire? What's the point?

November 14 2012 at 7:40 PM Report abuse rate up rate down Reply
freethedems2012

It is strange how the liberals gloat over destroying America. Hope you enjoy Communism.

November 14 2012 at 7:32 PM Report abuse rate up rate down Reply
PeopleSmoks

It's been proven that republicans don't have a brain or a heart...any evidence that they have a soul?

November 14 2012 at 7:02 PM Report abuse -3 rate up rate down Reply
2 replies to PeopleSmoks's comment
freethedems2012

No, that is the Democratic side of the isle you are looking at. Commie libs have no brain or soul.

November 14 2012 at 7:31 PM Report abuse rate up rate down Reply
rgmac12

Republicans certainly have brains .. how do you think we earn all that money .. and find so many ways to hide it from the democrats needy little hands .... Its called hard work .... As for a heart .. we only want to help those who arent capable of helping themselves ... the balance of the 47 Million on food stamps and 23 million on Unemployment (how can you NOT find a job after 96 weeks) .... should move to Mexico

November 16 2012 at 9:43 AM Report abuse rate up rate down Reply
metusmetu

THE UNITED STATES GOVERNMENT NEEDS TO "PAY BACK" THE BILLIONS OF DOLLARS THEY TOOK OUT OF THE SOCIAL SECURITY FUNDS!! NOW!

November 14 2012 at 3:20 PM Report abuse +6 rate up rate down Reply
Randy

Just because Americans were foolish enough to re-elect Obama, doesn't negate Obama's incompetence and failed leadership!

November 14 2012 at 2:48 PM Report abuse +6 rate up rate down Reply
3 replies to Randy's comment
billcac

Can anyone tell me how many days the market has been up since Mr. Wonderfull was elected? And don't tell me that Wall Street doesn't reflect on Main Street. When the market crashed people were either jumping out of windows or waiting on soup lines!

November 14 2012 at 1:40 PM Report abuse +6 rate up rate down Reply
jberg48

How about putting all elected officials,,,,,,,Congrees,,Senate and all government workers, including teachers,etc on Social Security like the rest of us and see how fast they come up with solutions besides Taxing our asses off everytime they open their mouths.!!

November 14 2012 at 12:16 PM Report abuse +6 rate up rate down Reply