Both Democrats and Republicans are taking a victory lap this week after recent passage of the Payroll tax cut extension.  Democrats and Republicans are telling the American public how they will be able to keep an average extra $80 a month in their wallet.  But is the short-term gain vs. the long-term cost of the program?  If several Democratic and Republican Senators are any indication of where seniors stand the answer is a definite no.

The payroll tax cut was devised as a short-term bipartisan stimulus by Democrats and Republicans.  The cut passed both the House and Senate by wide margins in late 2010.  Intended to last only a year and incentivize consumer spending instead the majority was saved according to surveys. But if there is one thing that politicians both left and right do, it is use the tax code to buy votes. 

With an election year looming in December of 2011 both Democrats and Republicans agreed it would be politically beneficial to extend it.  Mitch McConnell and Harry Reid in the Senate negotiated a two month extension of the packge but in a politically risky move House Republicans pushed for a full year-long extension.  The result was a disastrous PR fiasco. House Republicans backed down.  The only thing the GOP could take solace in was that they forced the administration to choose yes or no on the Keystone Pipeline in 60 days.

Since Congress returned from its Christmas Recess the appointed Conference Committee hammered out the details and of course issues ensued.  Democrats balked at not extending unemployment benefits under 70 weeks and off-setting the costs of the $100 billion plan.  Republicans were on the opposite side of these issues.  In the end the Committee hammered out an agreement, extending federal unemployment benefits 73 weeks, but not pleasing House Republicans and containing no off-sets to the cost of the extension.

Process and cost aside though the short-term benefits of extending the payroll tax cut extension are outweighed heavily by the long-term costs.  After the House had passed the plan (with multiple GOP and Democratic defections) 36 Senators voted no.  Democratic Senators such as Tom Harkin (IA), and Bernie Sanders (VT) and GOP Senator Orrin Hatch (UT) took the Senate to task for extending this cut at the cost of social security.

Payroll taxes fund Social Security and if reports are right if the program is not reformed it will be effectively bankrupt by as early as 2017.   Under the extension not only is SS losing substantial funding for another year but it also has to pay for new federal unemployment benefits.  For decades politicians have robbed the SS Trust Fund to pay for whatever they wanted.  This appears to be no different.

For almost as long as there has been SS politicians have used the tax code to buy votes.  And this has never stopped.  And if there is one off-shoot of this trend that holds true it is that once there is a tax cut it is permanent.  The debate Democrats and Republicans have over raising or lowering income taxes are not really where the real costs of the tax debate are. Instead the solvency of SS, Medicare and rising insurance premiums are.  Yet politicians refuse to acknowledge this.  Instead, politicians seek to mollify a worried public with new tax cuts elsewhere to off-set the increase in costs somewhere else.  Call me crazy, but come the end of 2012 I truly doubt many Republicans or Democrats will be willing to start off the New Year with a tax increase (or what some might call one).

While many Americans benefit in the short-term from the payroll extension almost every American is hurt in the long-term.  Those most hurt are seniors under 70 and baby-boomers just entering or nearing retirement.  There generation was reared on believing SS would be there for them.  Now it looks less and less likely that is true.  And with the American savings rate at a all-time low since 2000 this spells disaster for America’s ageing population.


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