$40 Story-Shortchanging U.S.?

For the math alone, I agree with the extension of the payroll tax cut. It is a great way to place 160 million times $1,000 into the economy, automatically. For most people, the periodic extra $40 will go right back into their neighborhood businesses, or maybe just to their gas stations.

However…

This is a short-term fix for a long-term problem.

Tax

What are the long-term losses for the rest of us?

 

  • Now both houses of Congress know that the payroll tax (Social Security can be played for political gain.  Is the “third rail” gone? As Senator Harkin said yesterday,

“I never thought I would have to see the day when a Democratic president of the United States and a Democratic vice president would agree to put Social Security in this kind of jeopardy,” exclaimed a visibly agitated Harkin from the Senate floor. “Never did I ever imagine a Democratic president would be the beginning of the unraveling of Social Security.”

  • Restoration of these contributions (or payroll taxes) is now positioned as a tax cut on the middle class (as opposed to a contribution to a valuable old age and retirement insurance program).
  • If you don’t need the $40 now, are you saving this money for the long-term? Did you increase your contributions to your 401(k) this year?
  • How does this cut affect the health of the Social Security program as a whole? According to the White House, it doesn’t.

Alicia Munnell, of the Boston Center for Retirement Research (BCRR) has a sensible suggestion for restoration of the cut here.

As a financial advisor, I can tell you that the retirement age clients I have met with in the last six months are extremely grateful for their Social Security income. If you look at it as a proxy for a pension or annuity, the perceived value in your portfolio goes way up.

When you compare your Social Security income to the downs and ups of the stock market in the last 3-4 years, a staid stable, guaranteed, income for life, for part of your retirement planning begins to look pretty awesome.

Americans are already not saving enough for retirement, and this payroll tax cut doesn’t help us “eat our peas”.

 

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