The mainstream media have given ample coverage to President Trump’s proposal to cut payroll taxes, but many news outlets have ignored the potential impact on Social Security. In fact, some of the coverage does not even mention Social Security – an odd omission considering that FICA payroll taxes fully fund the income security program! Cutting payroll taxes deprives Social Security of much-needed revenue. But consumers of mainstream news could be forgiven for not knowing that.
In fairness, major news sources — from Newsweek to the New York Times, from the Washington Post to the Associated Press, and from NBC to CNN — are by no means soft-pedaling the president’s proposal. They have chronicled objections from Democrats, Republicans, and economists that a payroll tax cut makes little macroeconomic sense. High earners would receive significantly more payroll tax relief than lower income workers. A payroll tax cut doesn’t help the unemployed. It would do nothing for contract workers in the gig economy.
“Trump’s coronavirus payroll tax cut has ‘important drawbacks’ and is ‘really inferior’ to other ideas, economists say.” – Newsweek
“Democrats… emerged to throw cold water on Mr. Trump’s payroll tax cut, saying it was not ‘what we need right now.’” – New York Times
“Senate Majority Leader Mitch McConnell views the idea with skepticism, privately making clear… that he ‘detests’ pursuing this particular policy, which probably would add to federal debt and deficits.” – Washington Post
No doubt this is valid reporting. But many media outlets failed to include the implications for Social Security itself, leaving it to progressive journalists and seniors’ advocates to warn the public. The National Committee has just sent a letter to Senators and House members warning about the perils of a payroll tax cut.
“It seems as though bad ideas never die in Washington. We do not believe that making cuts to or eliminating the Social Security payroll tax is an appropriate way to [provide financial relief to Americans during this crisis]. Any reductions to this vitally important revenue stream would threaten Social Security’s ability to continue paying benefits to the 63 million Americans who depend on [it].” – NCPSSM letter to the House and Senate
As we have argued in this space and in published opinion pieces, Social Security funds should not be used for unrelated purposes. Depriving Social Security of revenue could threaten retirees’ benefits, most of whom need every dollar of their monthly checks. With the Social Security trust fund facing insolvency in 2035 (if Congress doesn’t act to prevent it), cutting the program’s funding stream, even temporarily, could hasten the insolvency date.
Payroll tax cuts risk undermining the program’s fundamental design. When the Obama administration and Congress enacted a 2% payroll tax holiday during the Great Recession, Social Security funds were replenished using general funds. However, Social Security was designed to be self-funded by workers’ payroll contributions. That model has been successful for almost 85 years. Backfilling Social Security funds from other sources betrays the stability of the program’s worker-funded structure.
When Social Security ceases to become fully self-funded, it opens the door for “entitlement reformers” who seek to cut the program to reduce the deficit (even though Social Security does not contribute to federal debt). Using general funds to replace lost Social Security revenue is the “camel’s nose under the tent” toward cutting benefits. Most “entitlement reformers” insist that reducing future benefits is the only solution to Social Security’s fiscal challenges – while condemning proposals to bring needed revenue into the system. At the end of the Obama payroll tax holiday, fiscal hawks accused Democrats of “raising taxes” simply for restoring FICA contributions to their previous levels.
The news media unwittingly enable the “reformers” by omitting the broader implications for Social Security’s future in their coverage of a payroll tax cut. This is a disservice to the public, because workers and retirees need to be fully informed about the implications of any changes to the Social Security system. Responsible media coverage of a major change like reducing payroll taxes should include the impact on Social Security itself – and the 63 million retirees, disabled and their families who currently depend on it.