Trump payroll tax cut would come at a time when Social Security is already facing trouble
President Donald Trump wants the next stimulus package to financial report from the Social Security Administration.
The idea behind a payroll tax cut is to put more money in the pockets of both businesses and consumers at a time when the coronavirus pandemic has caused widespread economic pain. But it would slash the primary source of funding for Social Security, leading to concerns that future benefits could be reduced to pay for that payroll tax cut, according to the Senior Citizens League, a nonpartisan group focused on issues impacting older Americans.
President Donald Trump pitched his proposed payroll tax break Tuesday on Capitol Hill as pressure mounts on the administration and Congress to work more vigorously to contain the coronavirus outbreak and respond to the financial fallout. (March 10) AP Domestic
More stimulus in the works?: out of work in May, since those workers —and their employers on their behalf — are no longer paying the tax.
The impact on Social Security will depend on the length of the current recession, with researchers at University of Pennsylvania’s Penn Wharton Budget Model projecting that the program’s trust fund could run out three years earlier than expected — in 2032 rather than 2035 — if the country has a U-shaped recovery rather than a faster V-shaped rebound.
Would a payroll tax cut boost the economy?
It’s likely that the payroll tax cut would by far benefit higher-earning workers, according to Samantha Washington, a research assistant at the Center on Budget and Policy Priorities. Since the payroll tax is capped after your first $137,700 in earnings, the cut would provide a tax break for workers earning up to that threshold.
Low-income workers would receive a smaller break, the CBPP notes. For instance, a six-month payroll tax suspension would provide a $10,700 tax cut to a married couple earning $300,000, but a family of four with earnings of $50,000 would receive a tax break of $1,900, Washington estimates.
There’s one group that wouldn’t receive any benefit: Unemployed workers.
“People without jobs will not see a cent from cutting payroll taxes,” Washington notes.
To be sure, businesses would benefit by having extra cash on hand, which could help them stay afloat during the current recession. Even so, businesses already have received some flexibility in paying their share of payroll taxes. That’s because the Coronavirus, Aid, Relief and Economic Security Act, or CARES Act, allows businesses to defer their 2020 payroll taxes, splitting the payments between 2021 and 2022.
History points to an uneven record when it comes to payroll tax cuts. The employee portion of the payroll tax was reduced by two percentage points in 2011 and 2012 in an effort to stimulate the economy in the aftermath of the Great Recession. But there’s evidence that many Americans socked away that extra income, rather than spending it, according to the Tax Foundation.
At that time, Social Security’s trust funds were replenished with general revenue. The concern is that another payroll tax cut “could fuel efforts to eliminate it permanently, which the President favors,” CBPP’s Washington says.
She adds, “Without dedicated revenue, Social Security would no longer be self-financing and would have to compete with other programs for funding.”