Congress is set to extend the 2011 Social Security tax reduction to the end of 2012. Three cheers for that. Social Security taxes are some of the most unfair in America.
But Congress is once again going to sell federal workers down the river.
If the proposed deal goes through Congress and is signed by the President, the employee-contribution portion of the Social Security tax will remain at the current 4.2% reduced rate through the end of 2012.
It will return to the normal 6.2% rate in 2013, unless the reduced rate is extended again or made permanent after the November elections.
To pay for this reduced rate, Congress plans to cut government contributions to federal worker retirement plans.
In other words, all workers will pay less for their Social Security retirement pensions, but federal workers will pay more for their government employer retirement pensions.
The amount of money at stake in the federal pension contributions is only a small sliver of the money involved in the Social Security tax cut. Federal workers aren’t being targeted because it will make a real difference to the deficit.
Federal workers are being targeted out of pure mean-spiritedness.
Federal worker pay has already been frozen for 2011 and 2012. Meanwhile consumer prices rose on average 3.0% in 2011 and is likely to rise further in 2012. That means that federal worker pay is falling farther and farther behind inflation.
In real terms, federal workers have already taken a serious pay cut, and now their pensions are on the line as well.
It’s not like we can’t afford to pay our civil servants. In actual dollars (not adjusted for inflation) US gross domestic product (GDP) rose 4.2% in 2010 and 3.9% in 2011. Federal worker pay could have risen at the same rate with no damage to the economy.
Instead, federal workers are being told to take what is in real terms a pay cut at the same time that the country is getting a tax cut. That’s just not right.
There’s a better, fairer way to pay for the Social Security tax cut: extend Social Security taxes to cover all income.
Currently, people pay no Social Security tax on wages over $110,100 and no Social Security tax at all on non-wage income. Extending Social Security taxes to cover all income would more than make up for the reduction in rate to 4.2%.
The fair way to reduce the tax rate is to expand the tax base. Make everyone pay a little instead of making a few people pay a lot.
And don’t drag federal worker pay into the debate. If you think federal workers are overpaid, go apply for a federal job. There are no waiting lists. Federal workers have it hard enough without Congress playing politics with their paychecks and pensions.