Donald Trump’s Payroll Tax Cut Could Kill Social Security, Agency’s Actuary Warns
The payroll tax funds Social Security and Medicare. It consists of two parts: 12.4 percent of workers’ paychecks per pay period for Social Security and 2.9 percent for Medicare. Each is typically split evenly between employees and employers on incomes up to $137,700. Incomes above that amount pay no additional Social Security tax. Incomes above $200,000 are only subject to an extra 0.9 percent Medicare tax.
“We’ll be terminating the payroll tax after I hopefully get elected,” Trump said at a press briefing on August 12. “We’ll be terminating the payroll tax.”
Trump lacks the legal authority to unilaterally levy or cancel taxes because that power lies with Congress. Though they agree on little these days, both Democrats and Republicans have balked at the idea.
Last Wednesday, Democratic Senators Chris Van Hollen (MD), Ron Wyden (OR), Majority Leader Chuck Schumer (NY), and Independent Senator Bernie Sanders (VT) requested an anaylsis of the potential impact Trump’s cuts would have on Social Security.
“What would be the implications of such legislation for revenue coming into the OASI and DI trust funds, at what point would the OASI and DI trust fund asset reserves become depleted, and how would this affect the ability to pay scheduled OASI and DI benefits on a timely basis?” the Senators inquired in a letter to Goss last Wednesday. “While we would not be supportive of this hypothetical legislation, we would like to be aware of its potential implications. Thank you for your analysis into these questions, and we look forward to your reply.”
On Monday, Goss responded.
“If this hypothetical legislation were enacted, with no alternative source of revenue to replace the elimination of payroll taxes on earned income paid on January 1, 2021 and thereafter, we estimate that DI Trust Fund asset reserves would become permanently depleted in about the middle of calendar year 2021, with no ability to pay DI benefits thereafter,” Goss cautioned. “We estimate that OASI Trust Fund reserves would become permanently depleted by the middle of calendar year 2023, with no ability to pay OASI benefits thereafter.”
Trump, a longtime proponent of slashing the payroll tax, has claimed the savings would amount to “anywhere from $5,000 or more per family” and would be “great for businesses and great for jobs. A lot of people will be very happy to hear” about the possible elimination of the payroll tax, Trump insisted.
“A lot of the great, certainly conservative economists, they think it’s the greatest thing you can do. That’s better than the payments, that’s better than anything else,” Trump said. “But it’s a lot of money, and it’s going directly to the people and it goes there very easily. But it also creates stronger companies to employ the people. So we will be, on the assumption I win, we are going to be terminating the payroll tax after the beginning of the new year.”
Indeed, some conservative economists, like Stephen Moore, have argued that under his emergency powers, Trump has the “unquestionable authority” to use executive action to order the Treasure Department to postpone collecting the tax.
“That would mean that employers would no longer withhold that tax from people’s paychecks,” Moore claimed earlier this month. “Donald Trump could say, ‘If I’m re-elected, I’m going to forgive that tax.’ So it’s sort of a way of cutting taxes without this Congress necessarily authorizing it.”
But in an economy crippled and stalled for the foreseable future by the coronavirus pandemic, tens of millions of people are without jobs (many of which may be gone forever), and revenue has already plummeted.
Plus, cutting the legs off the two most successful government programs since World War II would not do anything for most payrolled employees. Nor would it help independent contractors, or 1099ers, who pay both halves on their own under the self-employment tax. It would, however, be an enormous boon to the highest earners because of how the tax is structured.