Eliminating Payroll Taxes Would Exhaust Social Security Trust Funds
We have warned in this space and others that President Trump’s payroll tax cuts are dangerous to Social Security. The program’s chief actuary has just confirmed that. In a new analysis, Stephen Goss warns that if payroll taxes were “eliminated” (as President Trump has promised to do if re-elected), the Social Security retirement trust fund would run dry in 2023. (The Social Security Disability Insurance trust fund would be depleted even sooner – in the middle of next year.)
President Trump signed an executive order on August 8, deferring the payment of workers’ payroll taxes until 2021. At that time, he vowed to terminate payroll taxes in his second term.
“If victorious on November 3rd, I plan to forgive these taxes and make permanent cuts to the payroll tax… I’m going to make them all permanent.” – President Trump
As the chief actuary’s analysis confirms, permanently eliminating the payroll taxes that Social Security depends on for its funding would destroy the program, which protects nearly 70 million Americans from income loss in retirement and upon disability or death of a family provider. (Social Security celebrated its 85th anniversary on August 14th.)
Goss prepared his analysis in response to a request from four U.S. Senators: Sen. Chris Van Hollen (D-MD), Sen. Bernie Sanders (I-VT), Sen. Ron Wyden (D-OR), and Senate Minority Leader Chuck Schumer (D-NY). Van Hollen reacted swiftly to the chief actuary’s projections.
“This analysis makes clear – this is another thinly veiled attempt to gut Social Security and go after the American people’s hard-earned benefits… We can’t let Trump get away with this and will do everything in our power to prevent this disastrous policy from ever going into effect.” – Sen. Chris Van Hollen (D-MD), 8/25/20
President Trump has suggested that funds from payroll tax contributions could be replaced by general federal revenue. That would fundamentally alter the ‘earned benefit’ nature of Social Security. “Social Security is not a handout. It’s not an entitlement,” National Committee government relations director Dan Adcock told CNBC. “That’s why even under those circumstances we are so strongly opposed to payroll tax cuts.”
The August 8th executive order was an attempt by President Trump to circumvent Congress, where the payroll tax was wildly unpopular with Democrats and some Republicans, too. And for good reason: not only do payroll tax cuts interfere with Social Security’s funding stream, they provide minimal economic stimulus, heavily favor employers and high-income earners, and do nothing for Americans currently out of work. Furthermore, the President’s executive order has sown confusion among employers.
“It’s been two weeks since Trump issued his directive deferring the deadline to pay worker’s portions of Social Security taxes from Sept. 1 to the end of the year. But employers, which are responsible for submitting those payments to the Internal Revenue Service, are waiting to hear from the agency on how any tax bill would be handled when it comes due later.” – Bloomberg, 8/25/20
The fact that the President or his advisors would even entertain the idea of deferring or terminating Social Security’s dedicated funding stream, especially now when the Social Security program is delivering critically needed economic stability during the COVID pandemic, demonstrates how much the Trump administration doesn’t know – or doesn’t care – about Social Security.