Hatch: Payroll Tax Extension ‘Very Dangerous’ to Social Security

December 13, 2011 - 4:37 PM
Sen. Orrin Hatch (R-Utah)

Sen. Orrin Hatch (R-Utah) (AP photo)

(CNSNews.com) – Sen. Orrin Hatch (R-Utah), top Republican on the Finance Committee, has concerns about the impact that extending the payroll tax holiday will have on Social Security, but he said the House Republican package debated Tuesday offers avenues to trim spending and spur job growth.

“Let’s face it. They’re taking money out of Peter to pay Paul, where there is no money for Paul to pay it back,” Hatch told CNSNews.com. “In other words, they’re going to take money out of Social Security.

“One of the reporters said to me, ‘Well, they’re going to pay for it out of the general fund.’ I said ‘with what? We’re broke,’” Hatch continued. “They’d have to borrow it to pay for it. In my eyes, it’s a very dangerous thing to be doing to Social Security. Democrats say ‘well, yeah, but it gives the middle class some money.’ There may be better ways of getting the money than ripping it out of Social Security.”

Social Security was established as a worker benefit program, ideally to be funded by what employees paid into the system through payroll taxes, rather than income tax revenue like most other government programs.

President Barack Obama and Democrats in Congress want to extend the payroll tax holiday – a temporary two percent cut in the payroll tax enacted last December – for another year. House Republicans have proposed an alternative plan to extend the cut.

Doing so would reduce funding for Social Security by $119 billion over the next year – on top of the $105 billion in reduced funding this year. Democrats propose to offset the 2012 funding shortfall by raising taxes, while Republicans propose to offset it by cutting spending.

Either way, the offsets to maintain Social Security funding would be drawn from the general fund, which derives mainly from income tax revenue.

“The Democrats pay for it with a permanent tax increase. We’ve played that game now for 35 years that I’ve been here,” Hatch said. “They always promise, ‘if you’ll raise taxes, they we will cut spending.’ The spending cuts never materialize, the tax increases continue. That’s a game that I’m just sick and tired of playing. We’ve just got to hold their feet to the fire this time.”

Currently, the $2.68 trillion Social Security trust fund draws only five percent from the general fund. If Obama’s payroll tax proposal is adopted, that would increase to 14 percent, according to Social Security Trustee Charles Blahous’s estimates.

The Social Security and Medicare trustees issued a report in August that said Social Security ran a deficit in 2010 for the first time since 1983. The deficit for 2010 was $49 billion, and the deficit for 2011 is projected to be $46 billion, the report said.

The Senate Democratic majority sought a three percent surcharge tax on millionaires to offset the lack of revenue going into Social Security, but the legislation failed. Meanwhile, House Republicans backed a bill to extend the payroll tax cut for another year while also gradually reducing unemployment benefits from 99 weeks to 59 weeks, while approving the Keystone oil pipeline from Canada into the United States.

“If you really want to create jobs, the largest shovel ready infrastructure project America has is, as an initiative expected to create 20,000 new jobs right away, is the Keystone XL private sector project, which means that the American taxpayers would not have to foot the bill to build it,” Hatch said. “As is the case with this White House, Keystone XL was approved, and then the White House backtracked after coming under pressure from its environmental base.”

The Keystone XL pipeline is a 700-mile, $7 billion project that would bring 700,000 barrels of tar sands oil from refineries in Alberta, Canada to refineries in the Gulf Coast. The project is owned by TransCanada. The State Department was set to approve the project, when environmental groups ramped up opposition.

In November, the White House announced it would delay the decision until 2013, or after the 2012 presidential election.

“Coming from Utah, where we have huge quantities of recoverable American energy, I can tell you that this White House is working against bringing American energy online,” Hatch continued. “With an unemployment rate hovering around 9 percent, and an under employment rate of around 16 or 17 percent, that’s kind of absurd.

“This project is the definition of shovel ready, unlike the president’s so-called stimulus that funded turtle tunnels, rattlesnake husbandry, skate board ramps, just to mention three wonderful projects that they were planning on,” Hatch added.

However, Senate Majority Leader Harry Reid (D-Nev.) excoriated the House Republican bill on the Senate floor Tuesday.

“If Republicans push this through, the pipeline is bound and doomed to failure,” Reid said. “That’s why President Obama and Democrats in the Senate have already declared the House legislation dead on arrival. Yet – after weeks of delay – Republicans plan a vote on it tonight.”

Reid said there should have been a clean vote on the payroll tax cut without anything added on.

“So I’m very disappointed in what the Speaker has done to his payroll tax proposal to get tea party votes,” Reid said. “Speaker [John] Boehner had to add ideological candy coating to his bill to get rebellious, rank-and-file Republicans on board.”

Hatch said the House Republican bill has strong qualities.

“While I continue to have concerns about the payroll tax holiday, House Republicans have put forward a proposal that includes this much needed reform to some of our social programs,” Hatch said. “Their proposal does not take aim at our nation’s small businesses with crushing tax hikes.

“Their approach doesn’t add a dime to our debt. Let me just say importantly that the House package finally closes the loophole allowing illegal immigrants from receiving the refundable child tax credit. That’s something I sounded the alarm on back in September,” he added.