This is an archived article that was published on sltrib.com in 2011, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Starting this month, workers' paychecks will be a little fatter because President Barack Obama, Congress and tax-cut advocates pushed through a one-year provision that lops 2 percent off the usual mandatory contribution to the Social Security Trust Fund.
The idea is that Americans will spend the money and stimulate the economy. But low-income elders say they fear potential long-term effects on Social Security, often all that stands between them and abject poverty.
Colleen Martinez, who lives in senior housing in Salt Lake City, said if the tax holiday leads to cuts in her benefits, her life would shatter. "I'd have to live with my children," said Martinez, 63. "Or on the street."
Said Win Hunnewell, 72, "I'd be under the viaduct."
Martinez and Hunnewell were among visitors at the Friendly Neighborhood Senior Center on a recent January morning. They and other seniors interviewed at the center said the tax holiday would have minimal immediate financial effect on them, as most no longer work.
But it means Social Security will, for the first time in 75 years, have to rely on the nation's general fund budget for revenue. They and others fear this might be a first step toward cutting Social Security benefits, one of the more provocative recommendations from Obama's debt-reduction panel, the National Commission on Fiscal Responsibility and Reform.
"It will affect our kids," said Martinez.
"It is really, really scary," said Hunnewell. Her advice? "You're on your own, kids."
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Policy line • The payroll tax holiday is an amendment to the bill that extended the tax cuts implemented under President George W. Bush. It means Social Security withholding will be 4.2 percent of a worker's gross pay, instead of the usual 6.2 percent for the 2011 tax year.
The stimulus measure will cost $112 billion; the government must borrow that amount to replenish the Social Security Trust Fund.
Utah Republican Sen. Orrin Hatch, who supported the tax holiday amendment, said Thursday he believes the measure would help job growth. "I don't believe," he said in an e-mail, "the temporary reduction in the payroll tax will have any effect on Social Security."
Democratic Rep. Jim Matheson also supported the tax holiday. His goal, said spokeswoman Alyson Heyrend, "is to ensure the solvency of Social Security. ... I don't think people should be worried."
However, congressional opponents and others say the temporary tax cut sets a bad precedent for Social Security, which hasn't relied on the nation's general fund or contributed to the federal deficit until now.
Pamela Causey, spokeswoman for the National Committee to Preserve Social Security and Medicare, is among the chorus of those who fear that the holiday will become permanent.
As with the rest of Bush's tax cuts that were due to expire at the end of 2010 — but didn't because politicians didn't want to raise taxes in hard economic times — reinstating the original 6.2 percent Social Security tax could prove difficult, she said.
Continuing to draw from general tax funds could profoundly change Social Security's status, Causey said, because it could end up fighting for money with every other government program, from the Department of Defense to the National Endowment for the Humanities.
"This would be a marvelous strategy for those looking to kill the program," she said.
At the senior center in Salt Lake City, Rosalind Margolis, 85, agrees. Politicians, she said, "don't want to face the hard part of raising taxes."
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Bottom line • Rob Ence, AARP's Utah state director, said his organization didn't take a position on the tax holiday but would oppose extending it. "The sad part is it's not about solutions but about some short-term [political] victories."
Individuals earning at least $106,800 — the maximum that can be taxed for Social Security — could end up with an extra $2,136 for the year. Those making less, naturally, will see smaller returns.
Policymakers expect most workers will spend the $112 billion to pay down debt or make everyday purchases, such as groceries and gas.
At the Friendly Neighborhood Senior Center, Joe Martinez, 75, said he works two days a week, so his 2 percent paycheck bump won't amount to much.
He'll spend it on bills. "We don't got enough" to spend it on extras, he said.
State Budget Director Ron Bigelow said his office estimates that if Utahns spend 100 percent of their tax break, they will put an additional $950,000 into the economy.
Usually, though, consumers spend 60 percent of their windfall — though that didn't happen with last year's tax-break stimulus, which analysts say mostly went into savings.
Still, Bigelow says the tax holiday will "clearly" be beneficial. "If people pay down debt, that's positive," he said. "If people spend it, that's sales tax revenue."
Critics, however, say the measure isn't about stimulus but about gutting Social Security.
"At the end of 2011, the Republicans will insist on extending the payroll tax holiday because the expiration of the holiday would increase taxes on working people," Rep. Peter DeFazio, D-Oregon, predicted during a December news conference. "And to pay for the extension, it's likely they will demand cuts in Social Security benefits."
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Thin line • For elders and people with disabilities on the edge of poverty, cuts could be devastating.
Salt Lake City resident Jeanette Murray, disabled at 59 in a 2002 car wreck, said she spent two years wrangling in Utah courts to get Social Security disability.
That, plus $200 in pension payments from her former employer, yields her $1,500 per month.
"I wasn't planning on being retired," she said. "If I had no Social Security, I'd be on the street. I'd be dead, actually, because I couldn't pay for my medications."
Without the benefits, more than 45 percent of elderly Americans would fall below the federal poverty line, two studies of Social Security done in 2010.
With the benefit, fewer than 10 percent are considered poor, that is, with annual earnings less than $10,289 for an individual or $12,982 for a couple.
The Center on Budget and Policy Priorities study, based on 2008 census data, shows a slightly different picture for Utah.
Here, 12.6 percent of the population falls below the poverty line; without Social Security, that statistic would rise to 41.3 percent.
The study calculates that Social Security benefits have kept 77,000 elderly Utahns out of poverty. —
Social Security tax holiday
By the numbers
An amendment to the measure that extended the Bush tax cuts reduces what workers will pay toward Social Security in 2011.
• 6.2 percent: The usual amount paid in Social Security withholding
• 4.2 percent: What workers will pay in the 2011 tax year
• $112 billion: What the tax break will cost the federal government
• 1.3 million: The number of Utahns expected to pay less in withholding
• $950,000: The amount of money Utahns are expected to keep