UPDATE: Trump’s Executive Order Could End Social Security

Trump announced on Saturday, August 8, that he planned to put a temporary hold, or executive memorandum, on payroll tax obligations 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, the President said.

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

BUT fact check… only congress can implement a payroll tax cut

Trump’s memorandum directed the Treasury department to “explore avenues, including legislation” to forgive the payroll taxes that are being deferred. The reality is quite simple. Trump “does have the authority to postpone the collection of the payroll tax under the Internal Revenue Code, but it’s only the authority to postpone and not forgive.” said Michael Graetz, professor of tax law at Columbia University and author of  The Wolf at the Door: The Menace of Economic Insecurity and How to Fight It

“He doesn’t have the authority to forgive the taxes,” added Graetz. “Only Congress can do that.”

What are payroll taxes?

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 percent towards Social Security, or 12.4 percent total. The Social Security payroll tax phases out for incomes above $137,700.

Is Social Security in trouble?

Trump’s decision 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 percent 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.

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Medicare doesn’t cover everything.
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Medicare doesn’t cover everything.
Luckily, those on Medicare can now start saving on out of pocket expenses.

 

Financial experts say don’t listen to Trump

Even if Congress did approve a cut, it would not automatically amount to a defunding of Social Security. The key issue will come down to whether the Social Security trust gets replenished from other sources. 

For example, when Obama and Republicans compromised and instituted a temporary payroll tax cut, it did not affect the long-term health of Social Security because revenue that would have normally funded the Social Security Trust Fund was reimbursed out of general government revenue.

This kept the trust from losing assets. If Congress, along with whomever wins the Presidency in 2020, do vote to forgive the payroll taxes that were deferred (and follow Obama’s model) then the Social Security trust fund would not be affected. 

Trump Administration says otherwise

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.”

The push back

Altman said that she does not see how 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.”

The word “terminate”

“If I win, I may extend and terminate,” Trump said of the payroll tax cut on Saturday, August 8. “In other words, I’ll extend it beyond the end of the year and terminate the tax.”

Altman says that the word “terminate” is a perfect description. “If you terminate the funding, you terminate the program,” she said. It’s that simple.

It remains unclear if by “extend and terminate” the president is meaning that he plans on adding another four-month extension on the levies, eliminating workers’ liability to eventually pay those taxes, or both.

“It would be really bold to try to make plans around something like this,” said Joe Elsasser, president and founder of Covisum, a Social Security claiming software company. “Change is going to come to the Social Security system one way or another. But in terms of a forever tax holiday, I think it’s a far cry from being able to expect that.”

What do you think?

We want to hear from you! Let us know what your thoughts are on Trump’s aim to terminate Social Security? Reach out to us on our Facebook page

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