Let’s Stop Calling For Payroll Tax Cuts.
Preserve Social Security and Medicare Instead
By Rick Delaney, Chairman of the Board
President Trump has said that he would not approve another COVID-19 stimulus bill if it doesn’t include a payroll tax cut for workers. The proposal he’s discussing would halt money being withheld from workers’ paychecks. But that’s the same money that is currently used to fund your Social Security and Medicare benefits.
This proposal comes on top of an earlier payroll tax cut that was passed as part of the Coronavirus, Aid, Relief and Economic Security Act (CARES Act). That payroll tax cut benefits employers who keep workers on their payroll in 2020. It is actually a tax credit that’s available to businesses negatively affected by the coronavirus, and employers may only temporarily defer the payment of Social Security payroll tax withholdings. Employers have an extra two years, until 2022, to pay the employer’s portion of 2020 payroll taxes. The Joint Committee on Taxation (JCT) estimates that this tax break will cost $351 billion over 2020 and 2021, but, will increase revenues by $339 billion (as taxes are caught up) over 2022-2023. JCT expects a $12 billion loss of revenue because some businesses would remain permanently closed.
Using the balance of the Social Security and Medicare payroll tax to provide a tax break for today’s workers, weakens funding for current benefits, and misses an opportunity to strengthen program funding in the future when today’s workers are nearing retirement. When a payroll tax cut for workers is combined with the previous tax cut, that would remove most of the employee and employer portion of Social Security and Medicare payroll taxes that the programs expect to receive in 2020 altogether.
Both programs already have well known long-term financing issues. According to the most recent Social Security Trustees report, Social Security already pays out more in benefits than it receives in payroll taxes. In 2019 Social Security paid $1,047.9 trillion in benefits versus receiving $944.5 billion in payroll tax revenues. Taxation of the benefits of retirees provides another $36.5 billion in revenues and $80.8 billion is money from “interest” earned by the assets of the Social Security Trust funds, special non-marketable I.O.U. bonds. In April of this year, the Social Security Trustees forecast that Social Security will be depleted by 2035, but that estimate is out - of - date due to effects from the coronavirus.
With as much as one quarter of the nation’s work force out of a job, Social Security’s income will take a major hit in 2020, while claims for Social Security will grow faster than anticipated, as older workers lose jobs. Before the coronavirus, older workers may have delayed claiming Social Security to allow their benefits to grow. But many of those who lose their jobs may decide to go ahead and claim Social Security benefits now because they can’t afford to wait — especially if their retirement accounts have gone down significantly in value.
The 2020 Medicare Trustees report recently estimated that the Hospital Insurance Trust fund will become depleted in about six more years— 2026. The high level of hospitalizations of seriously ill Medicare patients due to the coronavirus may further shorten the life expectancy of the Medicare Trust Fund.
During the nation’s recovery from the 2007- 2009 Great Recession, and Troubled Asset Relief Program bailouts, Social Security and Medicare became frequent targets of deficit cut negotiations. Deficit plans included proposals to tie the annual cost-of-living adjustment (COLA) to the more slowly – growing chained consumer price index which has been dubbed “chaining the COLA.” The Budget Control Act of 2011 led to automatic 2% annual Medicare cuts on payments to providers for most of the past decade. That cut affected all Medicare providers, including hospitals, doctors, nursing staff. These are the very same providers that have been dangerously strained by the coronavirus pandemic.
The Senior Citizens League (TSCL) is encouraging the public to ask President Trump to stop calling for payroll tax cuts, and to preserve Social Security and Medicare. To sign a petition (CLICK HERE) visit www.SeniorsLeague.org.