Forbes

Yes, Trump’s Proposed Permanent Tax Cut Would Gut Social Security By 2023

 

Erik ShermanSenior Contributor

Personal Finance

 

At a time of extremes in society, absolute alarmist statements might seem like quenching flames with jet fuel. But, in the case of Donald Trump’s proposed permanent cuts to payroll taxes, absolute and alarmist are baseline fact.

If Trump got his way with a permanent payroll tax cut and there was no replacement source of revenue, Social Security would be out of money by the middle of 2023. That’s not some click-bait concept. It’s the projection of the Office of the Chief Actuary at the Social Security Administration.

In answer to an August 19, 2020 letter from four Democratic senators, Chief Actuary Stephen Goss laid out a scenario that made two major assumptions: Congress would authorize a permanent end to the dedicated payroll taxes that fund Social Security and no other provision would be made to replace the income stream, such as transfers of funds from the Treasury.

As a reminder, Federal Insurance Contributions Act (FICA) payroll taxes go into the Old Age and Survivors Insurance (OASI) Trust Fund and Self-Employment Contributions Act (SECA) payroll taxes are for the Disability Insurance (DI) Trust Fund. Money from the trust funds respectively pay for retirement and disability benefits.

Operations and benefits require a constant replenishing of funds. In calendar year 2019, Social Security took in $1,061.8 billion and spent (mostly in benefits payments) $1,059.3 billion, leaving a positive balance of $2.5 billion for the period.

A billion is a huge amount of money, unless you’re talking about retirement benefits for a country of about 330 million people. The money everyone pays is not put aside in personal retirement accounts. It’s the cash that makes the benefits to retired people possible, just as workers today will eventually depend on others in the future to pay for their retirement benefits, absent some massive restructuring of the system. This is why constant replenishment is necessary.

Cut payroll taxes starting January 1, 2021, and “DI Trust Fund asset reserves would become permanently depleted in about the middle of calendar year 2021, with no ability to pay DI [disability] benefits thereafter,” Goss wrote. The ability to pay OASI benefits—regular retirement benefits—would end by the middle of 2023.

Could the scenario happen? Certainly, if Trump were reelected and Republicans both kept control of the Senate and regained it in the House. Coordinated agreement among all three could even in theory cancel payroll taxes retroactively back to January 1, 2021 once newly elected officials take office.

Now, Trump has said that Social Security wouldn’t fail and that it is possible to fund it different ways, like out of general revenues. Such an approach would mean only shifting the spending from one pocket to another, requiring that the government revenue would have to make it up somehow. And that means taxpayers sending in that necessary money. Unless someone is thinking of running the world’s largest fund-raising bake sale

Trump hasn’t been able to deliver on his frequently promised “in two weeks” healthcare bill. And Senate Republicans have made it clear that they don’t wish to spend the amount likely necessary, given the tens of millions still out of work. There is no reason to think that circumstances would work out any better.

What is important here—beyond what would be an existential financial crisis for many millions of older Americans—is the lack of connection between politics and governance. Holders of political office have responsibilities to oversee the operations of government in the name of, and for the good of, the people. Politicize decisions and the results endanger important activities.

 

A permanent payroll tax cut could deplete Social Security trust funds by 2023

PUBLISHED TUE, AUG 25 20202:00 PM EDTUPDATED TUE, AUG 25 20209:06 PM EDT

Lorie Konish@LORIEKONISH

KEY POINTS

·         President Donald Trump signed an executive order earlier this month that would give workers a temporary break from paying payroll taxes.

·         Many worry that a tax holiday could become permanent and that would hurt Social Security, which relies on those levies for its funding.

·         Now, one estimate from the Social Security Administration finds that if a permanent change were put in place, it could deplete the program’s funds by mid-2023. 

President Donald Trump has put a temporary payroll tax holiday in place in his latest bid to help shore up an American economy crippled by the coronavirus pandemic.

While that means some workers will take home bigger checks, others worry that such a change could deplete funding for Social Security, which relies on those taxes.

Now, a letter sent this week by Social Security Chief Actuary Stephen Goss estimates that if a permanent payroll tax cut were put in place, it could deplete the program’s funding by mid-2023. That’s based on the change taking effect for earnings starting on Jan. 1, 2021.

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The Old-Age and Survivors Insurance (OASI) Trust Fund would permanently run out at that time, at which point no benefits would be payable, according to Goss’ estimates. That trust fund is used to pay benefits to retired workers and their spouses and children, as well as survivors of deceased workers.

Meanwhile, the Disability Insurance (DI) trust fund would run out of funding two years earlier, in mid-2021. At that point, it would also have no money to pay benefits, Goss wrote. That trust fund is used to pay disabled workers who qualify for benefits, as well as their spouses and children.

The estimate is based on possible legislation, not any specific proposal. Goss sent the letter to Sens. Charles Schumer, D-N.Y.; Bernie Sanders, I-Vt.; Chris Van Hollen, D-Md.; and Ron Wyden, D-Ore., who had requested the analysis.

Payroll taxes are used to provide funding to Social Security and Medicare. Currently, employees pay 6.2% for Social Security on income up to $137,700 as of 2020. They also pay an additional 1.45% toward Medicare.

Trump signed an executive order on Aug. 8 to give Americans who earn less than $100,000 a temporary break from paying payroll taxes. But those taxes will have to be paid back next year.

“If I’m victorious on Nov. 3, I plan to forgive these taxes and make permanent cuts to the payroll tax,” Trump said at the time.

Trump’s comments were interpreted to mean either that he planned to make it so those funds did not have to be paid back, or that he planned to permanently eliminate the payroll tax.

After receiving Goss’ letter, Van Hollen issued a statement rejecting the prospect of a permanent payroll tax cut, saying it would “completely decimate Social Security.”

“This analysis makes clear – this is another thinly veiled attempt to gut Social Security and go after the American people’s hard-earned benefits,” Van Hollen said. “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.”

Social Security advocates have been quick to shut down the prospect of getting rid of the tax altogether.

“If Donald Trump is re-elected, Social Security will cease to exist before the end of his second term,” Nancy Altman, president of Social Security Works, said in a statement in reaction to the Goss letter.

Eliminating payroll tax could deplete Social Security by 2023, chief actuary warns

 

By Katie Lobosco, CNN

Updated 8:23 PM ET, Mon August 24, 2020

 

Washington (CNN)Eliminating the payroll tax could deplete the Social Security trust fund within three years if there's no alternative source of revenue, according to the agency's chief actuary.

The analysis was done at the request of four Democratic senators, who asked the agency to run the numbers after President Donald Trump said he would terminate payroll taxes if he's reelected.

"We will be, on the assumption I win, we are going to be terminating the payroll tax after the beginning of the new year," Trump said earlier this month, adding that it would save families thousands of dollars.

Only Congress could eliminate the payroll tax, and there's little support for it right now on either side of the aisle. It would do nothing to help the millions of Americans out of work because of the coronavirus pandemic and not getting paychecks.

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Trump claims that eliminating the tax would have no impact on Social Security, though, because the money would be shifted from the government's general fund. That, also, would require an act of Congress. The actuary's analysis was based on hypothetical legislation that would not take money from the general fund.

 

Trump and Biden both claim the other wants to cut Social Security. Here are the facts

It's been done in the past. When Congress cut the payroll tax under President Barack Obama, it reimbursed Social Security's trust fund out of general revenue. But the tax cut was temporary and only reduced the rate, rather than eliminated it altogether. Yet it still reduced federal tax revenue by about $227 billion over two years, according to the Congressional Research Service.

Currently, workers pay about 7.65% of their wage and salary incomes to fund Social Security and Medicare. Employers match the amount, while those who are self-employed pay both shares, though they get to deduct the employer portion.

Trump has long been a fan of the payroll tax cut. On August 8, he went around Congress and signed an executive action that calls for deferring the payroll taxes paid by employees until the end of the year. But because it's a deferral instead of a cut, workers could then face a bigger tax bill next year.

It may have little impact. Employers have the option of withholding the tax, and many say it would be "unworkable" to do so.

The pandemic has already put Social Security on shakier ground because the millions of people out of work aren't paying payroll taxes to begin with.

Report: Trump avoided taxes

President paid $750 in income taxes in ’16 and ’17 and nothing in 10 of last 15 years

Associated Press

President Donald Trump paid just $750 in federal income taxes the year he ran for president and in his first year in the White House, according to a report Sunday in The New York Times.

Trump, who has fiercely guarded his tax filings and is the only president in modern times not to make them public, paid no federal income taxes in 10 of the past 15 years.

The details of the tax filings complicate Trump’s description of himself as a shrewd and patriotic businessman, revealing instead a series of financial losses and income from abroad that could come into conflict with his responsibilities as president.

The president’s financial disclosures indicated he earned at least $434.9 million in 2018, but the tax filings reported a $47.4 million loss.

The disclosure, which the Times said comes from tax return data it obtained extending over two decades, comes at a pivotal moment ahead of the first presidential debate Tuesday and about five weeks before a divisive election against Democrat Joe Biden.

Speaking at a news conference Sunday at the White House, Trump dismissed the report as “fake news” and said he has paid taxes, though he gave no specifics. He also vowed that information about his taxes “will all be revealed,” but he offered no timeline for the disclosure and made similar promises during the 2016 campaign on which he never followed through.

In fact, the president has fielded court challenges against those seeking access to his returns, including the U.S. House, which is suing for access to Trump’s tax returns as part of congressional oversight.

New York Times editor Dean Baquet wrote in an editor’s note that “we believe citizens should understand as much as possible about their leaders and representatives — their priorities, their experiences and also their finances. Every president since the mid-1970s has made his tax information public. The tradition ensures that an official with the power to shake markets and change policy does not seek to benefit financially from his actions.”

During his first two years as president, Trump received $73 million from foreign operations, which in addition to his golf properties in Scotland and Ireland included $3 million from the Philippines, $2.3 million from India and $1 million from Turkey. The president in 2017 paid $145,400 in taxes in India and $156,824 in the Philippines, compared to just $750 in U.S. income taxes.

Trump found multiple ways to reduce his tax bills. He has taken tax deductions on personal expenses such as housing, aircraft and $70,000 in hair care. Losses in the property businesses solely owned and managed by Trump appear to have offset income from his stake in the television show “The Apprentice” and other entities with multiple owners.

During the first two years of his presidency, Trump relied on business tax credits to reduce his tax obligations. The Times said $9.7 million worth of business investment credits that were submitted after Trump requested an extension to file his taxes allowed him to reduce his income and pay just $750 each in 2016 and 2017.

Trump, starting in 2010, claimed and received an income tax refund that totaled $72.9 million, which the Times said was at the core of an ongoing audit by the IRS. The president has declined to release his taxes because of the audit.

A lawyer for the Trump Organization, Alan Garten, and a spokesperson for the Trump Organization did not immediately respond to a request for comment from The Associated Press on the report.

Garten told the Times that “most, if not all, of the facts appear to be inaccurate.”

He said in a statement to the news organization that the president “has paid tens of millions of dollars in personal taxes to the federal government, including paying millions in personal taxes since announcing his candidacy in 2015.”

The New York Times said it declined to provide Garten with the tax filings in order to protect its sources.

During his first general election debate against Democrat Hillary Clinton in 2016, Clinton said that perhaps Trump wasn’t releasing his tax returns because he had paid nothing in federal taxes.

Trump interrupted her to say, “That makes me smart.”

The New York Times contributed

Weekly News from Your Wisconsin Democratic Party Chair Follow this newsletter to keep current on the events shaping our state and the work our party is doing to win in 2020 and beyond.      Dear fellow Wisconsin Democrats,  39 days until polls close. The election is here. Have you voted yet?  If you have—or as soon as you do—post on Facebook and Twitter about it and ask everyone you know to do the same! This Tuesday, Madison State Rep. Shelia Stubbs and I celebrated National Voter Registration Day by dropping off our absentee ballots at the Madison clerk's office. You can see the video here. Let's seize every moment between now and 8pm on November 3rd.  Why is this so important? Because more than a million Wisconsinites already have absentee ballots—and whenever our great candidates do something wonderful or the GOP does something awful, we can help folks cast their ballots right away.  The Republicans certainly are giving us plenty of opportunities. 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We fight for her legacy now—including by stopping an outrageous GOP rush to jam a Supreme Court justice in time to strike down the Affordable Care Act. And we'll keep fighting, with our votes and our voices, for justice for all.  In solidarity,  Ben  PS: Did you miss the amazing Princess Bride reunion? Or just wish you could see it again? Either way, good news: we've now posted the video online! Chip in any amount to see it here: wisdems.org/princessbride     FIGHT on the Issues & FIGHT to Win   Biden Backs Wisconsin Workers: A Visit to Manitowoc   We were excited to welcome Joe Biden to Manitowoc, Wisconsin on Monday where he talked to workers about the struggles they are facing amidst Trump’s failed COVID-19 response. Biden visited with union workers at the Wisconsin Aluminum Foundry, an industry that has struggled under the cruel chaos of Trump’s trade wars and inability to contain the virus. 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We have made a resource for college students in Wisconsin to make it easier to register at your school address. Young voters are going to be absolutely essential to winning this fall, so find our guide HERE and get started today!     Weekend of Action!   North Milwaukee Regional Organizing Director Jarae Hines and Chair Wikler took Twitter by storm with a live conversation about volunteering in the coming Weekend of Action! It is more important than ever that we start hitting the phones to fight for the White House. Sign up HERE or click below to be a part of our vital organizing team that is fighting for the soul of the country and is going to win this November!       The clock is ticking and this election is coming! Trump and the GOP have made it clear that they will do anything to win, even if it means attacking the bedrock of our democracy-- our right to vote. That is why we need YOUR help, because you can make a HUGE difference in ensuring that every vote counts this November. 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