Congressman John Garamendi

Representing the 3rd District of California
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Congressman Garamendi Very Concerned About Payroll Tax Holiday's Impact on Social Security, Prefers Making Work Pay Tax Credit Instead

December 15, 2010
Press Release

WASHINGTON, DC – Congressman John Garamendi (D-Walnut Creek, CA), former chair of the California Senate Revenue and Taxation Committee, today expressed concern that the payroll tax holiday in the President Obama/GOP tax cut framework jeopardizes the Social Security trust fund. Garamendi also believes that the payroll tax holiday is less effective than the Making Work Pay Tax Credit, because the payroll tax holiday excludes 5.7 million middle class public sector workers like teachers and firefighters who do not pay into Social Security.

"In a downturned economy, putting money in the hands of working and middle class families is smart public policy, because they are likely to spend that many in their communities, creating increased demand and jobs," Congressman Garamendi said. 

 "However, the more I study this issue, the more I realize that the payroll tax holiday is the wrong approach. It cuts into the Social Security trust fund – fueling GOP dreams to privatize Social Security – and excludes 5.7 million middle class public sector workers who do not pay into Social Security," Garamendi added. "We owe it to seniors and millions of excluded workers to drop the payroll tax holiday from the tax cut compromise and replace it with a Making Work Tax Credit equal to the amount families would receive under the payroll tax holiday."

The Making Work Pay Tax Credit was part of the tax relief measures in the American Recovery and Reinvestment Act. It provided 110 million families a year – 95 percent of working families – with bigger paychecks. The tax cut was designed to maximize American recovery by increasing consumer demand every month instead of lump sum checks that economists agree are less effective. It is presently set to expire in 2010.

Last week, in a press release sent out by Congressman Garamendi's office, the payroll tax holiday was presented in a favorable light. But the more Garamendi has researched the issue, the more skeptical he has become. The payroll tax holiday cuts $120 billion a year from the Social Security trust fund. While the current framework only calls for a one year extension, many Republican lawmakers have publicly expressed their expectation that once the payroll tax holiday is in place, political pressures resulting from the subsequent 48 percent payroll tax increase (from 4.2% to 6.2%) will make it increasingly difficult to reinstate full funding for Social Security. Moreover, 5.7 million public sector employees, including millions of teachers, do not pay into or collect Social Security. This means they would be excluded from receiving the tax cut under the framework.