Politics

Trump’s payroll tax break weakens Social Security, Dems claim

WASHINGTON (AP) — President Donald Trump’s move to defer Social Security payroll taxes could be taking him into treacherous political territory.

His directive — aimed at boosting an economy shaken by the coronavirus pandemic — doesn’t affect retirement benefits but impacts how they’re paid for. Democrats seized on it Monday as a signal that Trump would cut the social safety net and break a promise he made as a candidate in 2016 not to touch Social Security and Medicare. Some nonpartisan experts also expressed concerns.

Deferral of the 6.2% payroll tax on employees for the last three months of this year could mean that up to $100 billion in payments to the Social Security Trust Fund would be delayed, according to an updated estimate by the nonpartisan Committee For A Responsible Federal Budget, which advocates for reducing government deficits.

“What it does is undercut Social Security,” Rep. John Larson, D-Conn., said Monday, addressing Trump’s move. The president “is defunding Social Security and breaking his promise. … He will say, ‘I’m not doing anything to touch Social Security, I’m just deferring this,’ but it’s as clear as my hand in front me.” Larson chairs the House Ways and Means subcommittee overseeing the retirement program.

The Democratic National Committee was out with a video accusing Trump of breaking his promise to older Americans.

‘This has been a priority for President Trump’

The White House pushed back.

“Providing a payroll tax deferral poses no risk to the Social Security Trust Fund and puts more money in the pockets of hardworking Americans as we fight to end this pandemic from China and rebuild our economy safely,” spokesman Judd Deere said in a statement. “This has been a priority for President Trump and while congressional Democrats played politics the president acted for the forgotten men and women of this country as he has done so many times before.”

With more than 60 million beneficiaries, Social Security is funded by a 12.4% payroll tax evenly divided between employees and employers. But there’s a cloud over the program’s long-term finances, and even before the pandemic, government experts estimated it would be unable to pay full benefits starting in 2035. Medicare’s hospital fund is also financed by a payroll tax, but that’s not affected by Trump’s directive.

Social Security and Medicare are seen as politically untouchable. It’s not just that seniors have clout in elections, but the two programs have longstanding inter-generational support.

Trump acted on his own after negotiations with Congress on another COVID-19 relief package broke down. The president has authority to take such limited steps during the national emergency due to the coronavirus.

Trump has also directed Treasury Secretary Steven Mnuchin to work with Congress to forgive the entire amount of the payroll taxes deferred. Otherwise, the tax holiday would become a tax liability for workers when the government comes back to collect the money owed to Social Security.

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(Photo by Emily Kask / 30203169A / AFP) (Photo by EMILY KASK/30203169A/AFP via Getty Images)Words from Gloria Gaynor’s “I Will Survive” are painted onto plywood covering the window of a closed business during the coronavirus outbreak in New Orleans on March 26, 2020. – New Orleans, the Louisiana city known as the “Big Easy” famed for its jazz and nightlife, has become an epicenter of the coronavirus pandemic gripping the United States. The southern US state now has 2,305 confirmed cases and 83 deaths. New Orleans alone accounts for 997 of the cases and 46 of the deaths. (Photo by Emily Kask / 30203169A / AFP) (Photo by EMILY KASK/30203169A/AFP via Getty Images)A closure note is posted on the family-owned Bar Redux in the Bywater in New Orleans on March 26, 2020. – New Orleans, the Louisiana city known as the “Big Easy” famed for its jazz and nightlife, has become an epicenter of the coronavirus pandemic gripping the United States. The southern US state now has 2,305 confirmed cases and 83 deaths. New Orleans alone accounts for 997 of the cases and 46 of the deaths. (Photo by Emily Kask / 30203169A / AFP) (Photo by EMILY KASK/30203169A/AFP via Getty Images)A shuttered business is pictured on Decatur Street in New Orleans, Louisiana, on March 26, 2020. – New Orleans, the Louisiana city known as the “Big Easy” famed for its jazz and nightlife, has become an epicenter of the coronavirus pandemic gripping the United States. The southern US state now has 2,305 confirmed cases and 83 deaths. New Orleans alone accounts for 997 of the cases and 46 of the deaths. (Photo by Emily Kask / 30203169A / AFP) (Photo by EMILY KASK/30203169A/AFP via Getty Images)A shuttered restaurant is pictured in the French Quarter in New Orleans, Louisiana, on March 26, 2020. – New Orleans, the Louisiana city known as the “Big Easy” famed for its jazz and nightlife, has become an epicenter of the coronavirus pandemic gripping the United States. The southern US state now has 2,305 confirmed cases and 83 deaths. New Orleans alone accounts for 997 of the cases and 46 of the deaths. (Photo by Emily Kask / 30203169A / AFP) (Photo by EMILY KASK/30203169A/AFP via Getty Images)National Guard members walk down Rampart Street in New Orleans, Louisiana, on March 26, 2020. – New Orleans, the Louisiana city known as the “Big Easy” famed for its jazz and nightlife, has become an epicenter of the coronavirus pandemic gripping the United States. The southern US state now has 2,305 confirmed cases and 83 deaths. New Orleans alone accounts for 997 of the cases and 46 of the deaths. (Photo by Emily Kask / 30203169A / AFP) (Photo by EMILY KASK/30203169A/AFP via Getty Images)Stony Brook, N.Y.: State workers and members of the National Guard check in people arriving for the drive-thru coronavirus testing at Stony brook University in New York on March 25, 2020. (Photo by John Paraskevas/Newsday RM via Getty Images)Gov. Brad Little issues a statewide stay-at-home order to further prevent spread of coronavirus COVID-19 at a press conference Wednesday, March 25, 2020 held at Gowen Field, headquarters of the Idaho Army National Guard in Boise, Idaho. (Darin Oswald/Idaho Statesman/Tribune News Service via Getty Images)A Healthcare worker help to check in with the assistant from the Florida Army National Guard as vehicles line up at the COVID-19 drive-thru testing center at Marlins Park as the coronavirus pandemic continues on Wednesday, March 25, 2020 in Miami. (David Santiago/Miami Herald/Tribune News Service via Getty Images)A Healthcare worker help to check in with the assistant from the Florida Army National Guard as vehicles line up at the COVID-19 drive-thru testing center at Marlins Park as the coronavirus pandemic continues on Wednesday, March 25, 2020 in Miami.(David Santiago/Miami Herald/Tribune News Service via Getty Images)WASHINGTON, DC – MARCH 26: (L-R) U.S. President Donald Trump and National Institute of Allergy and Infectious Diseases Director Anthony Fauciarrive for a briefing on the coronavirus pandemic in the press briefing room of the White House on March 26, 2020 in Washington, DC. The U.S. House of Representatives is scheduled to vote Friday on the $2 trillion stimulus package to combat the effects of the COVID-19 pandemic. (Photo by Drew Angerer/Getty Images)WASHINGTON, DC – MARCH 26: National Institute of Allergy and Infectious Diseases Director Anthony Fauci listens as U.S. President Donald Trump speaks during a briefing on the coronavirus pandemic, in the press briefing room of the White House on March 26, 2020 in Washington, DC. After the U.S. House of Representatives votes on Friday, President Trump is expected to sign the $2 trillion stimulus package to combat the effects of the COVID-19 pandemic. (Photo by Drew Angerer/Getty Images)WASHINGTON, DC – MARCH 25: Flanked by National Institute of Allergy and Infectious Diseases Director Anthony Fauci (L) and White House coronavirus response coordinator Deborah Birx, Vice President Mike Pence speaks during a briefing on the coronavirus pandemic, in the press briefing room of the White House on March 25, 2020 in Washington, DC. The United States Senate continues to work on a $2 trillion aide package to combat the health and economic effects of the COVID-19 pandemic. (Photo by Drew Angerer/Getty Images)BLOOMINGTON, UNITED STATES – MARCH 26, 2020: A volunteer puts on gloves before participating in the Monroe County Food Train to give meals, and groceries to youth 18 and under, during the COVID-19/Coronavirus emergency in Bloomington. Hundreds of workers have been laid off in the community, and the governor has issued a stay-at-home order.- PHOTOGRAPH BY Jeremy Hogan / Echoes Wire/ Barcroft Studios / Future Publishing (Photo credit should read Jeremy Hogan / Echoes Wire/Barcroft Media via Getty Images)BOSTON, MA – MARCH 26: Secretary of Health and Human Services Marylou Sudders and Gov. Charlie Baker hold a press conference in the Gardner Auditorium at The Massachusetts State House in Boston on March 26, 2020. Baker and Sudders addressed attempting to secure more pieces of personal protection equipment and mobile schooling concerns. (Photo by Blake Nissen/The Boston Globe via Getty Images)The Magic Bag theater is pictured closed, due to Michigan Governor Gretchen Whitmer’s measures to stop the spread of COVID 19 in Ferndale, Michigan on March 26, 2020. (Photo by JEFF KOWALSKY / AFP) (Photo by JEFF KOWALSKY/AFP via Getty Images)Up Next

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The whole exercise troubles some nonpartisan experts, who say the bedrock principle of Social Security is that earmarked payroll taxes from employees and their employers pay for earned benefits for retirees.

“This undermines the dedicated funding, which is the foundation of Social Security,” said William Arnone, CEO of the National Academy of Social Insurance, a nonpartisan public policy organization.

Although the White House says the Treasury Department will guarantee that the Social Security Trust Fund is made whole, Arnone said he’s worried because payroll tax collections have already taken a hit this year in the coronavirus economy.

“The question of the reimbursement of the trust fund is not clearly spelled out ,” said Arnone. “It is a big boost in take-home pay for workers, but what is the long-term cost to them if it makes Social Security less stable?”

Under Trump’s plan, workers making below $104,000 a year would get the tax deferral.

But the president’s directive is incomplete because many key details are still not known.

For example, the benefit is limited to workers who “generally” make less than $4,000 every two weeks. However, Trump didn’t define “generally” in his directive to the Treasury. What happens to people who make $4,001?

‘It raises all sorts of questions’

Economist Eugene Steuerle of the Urban Institute think tank said other practical issues seem to have been ignored.

“It raises all sorts of questions with respect to people who can’t come up with the money down the road to pay back the tax cut,” said Steuerle. That would have to be dealt with if Mnuchin can’t persuade lawmakers to permanently forgive the taxes owed.

Yet there are lots of reasons to think Congress won’t bend to Trump’s will.

It isn’t just Democrats, as the White House suggests. Many congressional Republicans have been cool to Trump’s payroll tax cut.

Lawmakers are loathe to reward the president for trying to change tax policy without their consent, and for trying to break the longstanding tie between Social Security payroll taxes and the earned benefit that they are paying for.

Businesses also have misgivings, because the plan would require them to change their payroll systems and could leave them responsible for collecting deferred taxes later on.

How much of a boost to the economy Trump’s plan would provide is a matter of debate.

In a previous coronavirus relief bill, Congress and Trump together gave employers the option of deferring their share of Social Security payroll taxes this year, but it’s unclear how many businesses have taken that up.

A payroll tax break is not a new idea. Congress approved a a temporary cut in the Social Security tax during the Obama years, in the aftermath of the 2007-2009 recession. That cut was 2 percentage points.

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