The payroll tax funds Social Security. Cutting the tax would reduce funding to Social Security by $119 billion over the next year, on top of the $105 billion reduced from funding in 2011.
While Republican lawmakers have expressed plans to vote for a full-year extension to the tax cut, Obama told his audience Tuesday at the Eisenhower Executive Office Building in Washington that they must put pressure on Congress.
"Congress needs to extend that tax cut – along with vital insurance lifelines for folks who've lost their jobs during this recession – and they need to do it now, without drama and without delay," Obama said. "No ideological sideshows to gum up the works. No self-inflicted wounds. Just pass this middle-class tax cut. Pass the extension of unemployment insurance. Do it before it's too late, and I will sign it right away."
House Republicans sought to extend the payroll tax cut for a full year in December. However, they agreed to a Senate Democratic proposal to extend it just for the first two months of 2012.
On Monday, Obama delivered a budget address in which he referred to the Bush tax cuts as $1 trillion in spending. However, on Tuesday, Obama stressed that the economy is improving and that this is not a time to reduce the amount of spending money.
"Allowing this tax cut to expire would make people's lives harder right now," Obama said. "It would make their choices more difficult. It would be $40 less for groceries to feed your kids; it would be $40 less for the medications you depend on; $40 less to cover bills and the rent; $40 less to take care of an elder parent, or to donate to a church or a charity.
"And when gas prices are on the rise again – because as the economy strengthens, global demand for oil increases – and if we start seeing significant increases in gas prices, losing that $40 could not come at a worse time," Obama said. "One local entrepreneur named Thierry – where's Thierry? He's right here.
"He told us that $40 would cover the gas that gets him to his day job, or, alternatively, the Internet service his small business depends on. So he'd have to start making a choice – do I fill up my gas tank to get to my work, or do I give up my entrepreneurial dream. 'Forty dollars,' he wrote, 'means a heck of a lot,'" the president added.
When Obama entered the White House in January 2009, the city average price for one gallon of regular unleaded gasoline was $1.79, according to the Bureau of Labor Statistics. The figures are in nominal dollars: not adjusted for inflation. Five months later in June, unleaded gasoline was $2.26 per gallon, an increase of 26 percent. By December 2011, the price of regular unleaded gas per gallon was $3.28, an 83 percent increase from January 2009.
Cutting the payroll tax could make Social Security a less autonomous program than it had been before, Charles P. Blahous III, a member of the board of trustees for Social Security and Medicare, told CNSNews.com in December. With less payroll tax revenue coming in, the shortfall would have to be replaced with income taxes.
Social Security was established as a worker benefit program; to be funded by what employees paid into the system through payroll tax deductions. Replacing much of that financing with income tax revenue would fundamentally change Social Security, making it more like other government entitlement programs that are subject to political whims and budget priorities, Blahous said.
When President Franklin D. Roosevelt put Social Security into place, he designed it to be funded separately from the general fund. He was quoted as saying, "We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren't a matter of economics, they're straight politics."
The Social Security board issued a report in August 2011 saying that Social Security ran a deficit in 2010 for the first time since 1983. The deficit for 2010 was $49 billion, and the deficit for 2011 is projected to be $46 billion, the report said.