Iron County Progressive

 

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

katie lobosco circle cut

 

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.