The abrupt and severe contraction in the U.S. economy caused by the coronavirus has far-reaching consequences for Social Security. Twenty million workers filed claims for unemployment between March 15, 2020 and April 17, 2020, a level that has not been seen since the Great Depression. Both the wide-scale shutdowns and layoffs, as well as provisions of the coronavirus CARES Act stimulus legislation significantly reduce the anticipated amount of payroll taxes flowing into Social Security this year.
The CARES Act provides employers with incentives to retain workers on the payroll through a tax credit. In addition, employers are allowed to defer the employer portion of payroll taxes for 2020, with the taxes due in two equal installments by December 31, 2021, and December 31, 2022.
The Congressional Budget Office (CBO) recently issued a cost estimate citing the Joint Committee on Taxation’s estimates of the cost for Social Security of about $406 billion in reduced SS revenues between 2020 -2021, increased revenues from repayments of $339 billion between 2022-2023, and about $3 billion in higher outlays which would be due to administrative and debt costs. The CBO assumes that some companies will go out of business and would be unable to repay deferred taxes — about $67 billion in Social Security revenues. The CBO warned that uncertainties its estimate of the CARES Act are high, and that actual outcomes could vary significantly.
The Social Security Trustees estimated last year that SS payroll taxes in 2020 would be about $973.8 billion under average economic conditions. Thus the $406 billion cost of the payroll tax provision in the CARES Act appears to be as much as 42% of all anticipated Social Security revenues for 2020.
Also putting pressure on the program, TSCL anticipates that more people will file claims for benefits. While employment was at record levels just a few months ago, many older adults postponed filing for benefits to allow their Social Security payouts and retirement accounts to grow. Now, faced with paid sick leave and unemployment benefits ending, older workers are unlikely to be able to afford to wait to file for benefits if they have lost their jobs. In addition, workers lucky enough to have 401(k)s and IRAs have experienced significant losses in the value of those retirement accounts and will be depending on Social Security all the more. Big changes in equity prices reduce the distributions from those accounts.
The CARES Act will not impact payment of Social Security benefits because funding from the projected Social Security payroll taxes will be credited to the Trust Fund. Increased borrowing and increased debt costs may put added pressure on Social Security for changes to improve solvency in the near future, though.
Safeguarding the health of all Americans and protecting Social Security and Medicare is of primary importance now. The Senior Citizens League is working for legislation that would help strengthen Social Security. How has the coronavirus affected you? Take TSCL’s Survey of Senior Costs.