Can someone explain to me how Obama's tax cut could hurt Social security?
- Byrne HLv 41 decade agoFavorite Answer
Social Security is paid for by FICA taxes, which are taken out of every paycheck. If they're cut, the average person will have more money to spend -- but only because they put less into Social Security.
One easy way to understand this is to imagine doing it on a personal level. Let's say you wanted to save up all year to buy a $2000 computer. You realize that with two weeks of time off work each year, you'll need to set aside $40 a week to buy the computer.
If you 'cut' that $40 a week down to $20 a week, you'd have more money to spend from week to week -- but you wouldn't be able to afford the same computer.
This is a similar situation, with lots of twists and turns because of how complex social security and tax law is, but that's the basic idea.Source(s): http://www.taxrascal.com/
- Anonymous1 decade ago
Workers pay 2 taxes. Income taxes (through withholding) and payroll taxes (7.65%).
Due to deductions for children, many poor people only pay payroll taxes--they often pay $0 tax and receive eic.
So...if you want to cut taxes further, income tax is out (the poorest people don't pay it), so you cut payroll taxes.
But payroll taxes fund SSA benefits.
- 1 decade ago
less taxes in, means less taxes that will come out