The Effect of the 2% Cut In FICA Taxes in 2011.

In my post, “The Future Of Social Security And What Can Be Done To Save It”, I posted a graph from the Social Security Trustee’s Report for 2010 showing the anticipated cash flow for the OASDI (Old Age, Survivors, and Disability Insurance) Trust Funds from 2007 through 2019.

Here is a copy of it.

The Republican Parrty, whose twin mantras, “Reduce The Deficit” and “Cut Taxes For Everyone, Especially The Rich” are irreconcilable, got President Obama to sign off on a one year “Payroll Tax Holiday” which cut employees’ share of the FICA tax from 6.2% to 4.2% in 2011. This reduced Social Security’s revenue by about 1/6. I am using $112 billion, but I have seen estimates as high as $120 billion. This is money which has to come out of the OASDI Trust Funds. This means it will be added to the Federal budget deficit for 2011, since all surplus money in the OASDI Trust Funds has been invested in Treasury securities, some of which now have to be cashed in.

I made a new version of the graph shown above, showing the effect of this “tax holiday” on the OASDI’s revenue stream. Compare it to the preceding graph.

For all this money lost to the Trust Fund in 2011, what do workers get in the form of tax cuts. Not a whole lot. If the worker’s annual income is $40,000, that’s $800 over the course of the year divided among into 52 weekly, 26 bi-weekly. or 12 monthly paychecks. If the worker earns $80,000 annually, his extra pocket money is $1,600. For those workers who make the maximum covered amount, $106,800, or above, they will see an extra $2,136. Since Social Security is taxed individually, married couples could get up to a $4,272 take home pay boost for the year. But most people make a lot less than this.

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One Response to The Effect of the 2% Cut In FICA Taxes in 2011.

  1. Pingback: How to Avoid Default Without Raising the Debt Ceiling, or Doing Anything Else

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