A Social Security Administration office in San Francisco.
President Donald Trump’s executive order calling for a payroll tax holiday is prompting many to ask: What does that mean for the future of Social Security?
Whether the president’s move ultimately will hurt the program depends on who you ask.
Payroll taxes are taken from both employers and workers to help fund government programs such as Social Security and Medicare. Currently, employers and workers each pay 6.2% towards Social Security, or 12.4% total. The Social Security payroll tax phases out for incomes above $137,700.
Trump announced on Saturday that he plans to put a temporary payroll tax holiday in place for workers who make less than $100,000 per year. The tax suspension would likely run from as soon as August through the end of the year, he said.
“If I’m victorious on November 3rd, I plan to forgive these taxes and make permanent cuts to the payroll tax,” Trump said.
The move comes as Covid-19 has made Social Security’s already limited funds more vulnerable.
The Social Security Administration’s most recent projections indicate the program’s combined trust funds will run out in 2035, at which time 79% of promised benefits will be payable.
But that estimate was put out in April and did not take into account the effects of the pandemic. Other more recent estimates have predicted the funds now will likely run out sooner under current conditions, in 2032 or 2028.
Trump’s payroll tax cut, if made permanent, would make that happen even quicker, as soon as 2023, said Nancy Altman, president of Social Security Works, an advocacy organization.
Meanwhile, the Trump administration is arguing that the payroll tax cut would not affect the program’s funding.
“There would be an automatic contribution from the general fund to those trust funds,” Treasury Secretary Steven Mnuchin said in an interview on Sunday. “The president in no way wants to harm those trust funds, so they would be reimbursed, just as they’ve always been in the past when we’ve done these types of things.”
But Altman said she does not believe that would work.
Social Security currently has reserves of $2.9 trillion. Meanwhile, payroll taxes bring in $1 trillion per year.
“If he throws it until the end of 2023, then benefits will stop, because there’s not enough money in the accumulated reserve,” Altman said.
Using general revenue would take an act of Congress, she said.
“[Trump] certainly will make the case that he has the power,” Altman said. “It’s not clear to me that he has.”
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“If I win, I may extend and terminate,” Trump said of the payroll tax cut on Saturday. “In other words, I’ll extend it beyond the end of the year and terminate the tax.”
The word “terminate” is a perfect description, according to Altman.
“If you terminate the funding, you terminate the program,” Altman said.
This is a developing story. Please check back for updates.