The debate in Congress over the payroll tax-cut extension, which is going down the same route as...pretty much every other debate in Congress this session, has created a sort of political Bizarro World. The proposed legislation wouldn't just extend the payroll tax cut, it would also tackle other funding issues. But the payroll tax-cut is where the action is.
The concern, among a strange axis of conservative Republicans and liberal Democrats, is that extending the tax cut will threaten Social Security. Benefits outpaced revenues in 2010. But as this chart from the New York Times shows, that's not unprecedented — Social Security payments ran above revenues in the 1970s and '80s.
However, since the late 1980s, Social Security has been running a surplus, with the extra money invested in interest-earning Treasury bonds. That funds now stands at $2.6 trillion. The cost of the payroll tax cut? $105 billion.
The bottom line is that the country can easily afford to extend the payroll tax cut at this time. We don't even need to charge millionaires a surtax to pay for it, as the White House initially proposed (although millionaires could also afford it, too).
The only reason it's not being enthusiastically extended with hugs and back-slaps on both sides of the otherwise noxiously partisan congressional aisle is that some Democrats don't want to embrace tax cuts at the expense of Social Security and some Republicans have joined them. Otherwise, the tax cut makes sense because it's the kind of stimulus that gets spent by people who benefit from it: middle-class Americans who live on what they earn.
Of course, because this is such a good tax cut to be extending right now, given the sluggish nature of the recovery, the Republicans have also had to grit their teeth and accept that a Democratic administration and Democrats in Congress can co-opt a core chunk of the GOP's economic platform — tax cuts — and watch them make life better for voters who might very well not vote for Republicans in 2012.
People are far too worried about Social Security these days. It's not a Ponzi scheme and it isn't headed for insolvency. There are numerous ways to ensure that it will be here in 50 or 100 years.
But people aren't worried enough about the low levels of GDP growth that the U.S. has slogged through this year. Failing to extend the payroll tax cut could lop a full percentage point off GDP growth in 2012. And if that happens, we won't be talking next December about why would should cancel the payroll tax cut for 2013 — we'll be having this same debate, all over again.