Trump Payroll Tax Deferments Make No Sense, Unless the Goal is to Attack Social Security

President Donald Trump’s executive order to defer Social Security payroll taxes for the last four months of 2020 takes effect tomorrow. I have not read any expert’s take on this that is favorable, so if you know of any positive punditry, please send me links, and I add them to the bottom of this post.

The rationale for the deferments is the inability of Congress to enact further economic relief for people who’ve lost their jobs or seen their incomes cut by the pandemic. Of course, Trump is hardly a casual bystander to this impasse, having done very little to convince Senate Republicans to come to the negotiating table. House Democrats long ago passed a big stimulus package, and the issue will be one of many contentious issues of the 62 days of scorched-earth election rhetoric until November 3.

The primary group of people needing relief are those with no jobs. Even a temporary payroll tax cut makes no sense to them. They’re not paying any such taxes right now, so how can a reduction in what they’re not paying be of any help? Arguing that employers who are freed of payroll tax obligations would decide that lower payroll costs made it sensible to re-employ people is a stretch.

Having to repay any deferred taxes next year further stretches the credulity of Trump’s action. There has been talk of somehow making the cuts permanent, but taxation is a power reserved to Congress, not the White House. That’s why the best Trump can do is impose temporary cuts. And make them voluntary. There is no assurance that very many employers will take him up on this Apprentice-like offer.

Given the poor targeting of this stimulus and its temporary nature, many critics (and, yes, they’re overwhelmingly Democrats) say the true reason for Trump’s order is to reduce revenues flowing into Social Security and weaken its ability to pay future benefits from the Social Security trust fund.

If you are trapped at home and starving for mental activity, you can find out everything you need to know about the trust fund by reading the “The 2020 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds.“ These people do seem to get paid by the word, don’t they?

The key take away for today’s discussion is that payroll taxes from current employees fall short of paying the benefits that people are entitled to receive. Trust fund surpluses make up the difference, and will be sufficient to permit the program to pay full benefits until 2035. At that time, the SSA carriage turns into a pumpkin, and current payroll taxes are projected to cover only 79 percent of benefits.

Shortening the funds’ solvency periods (there are separate ones for retirees and beneficiaries with disabilities) makes the program vulnerable to the kinds of emergency changes that often bypass the thoughtful analysis that Social Security merits. Covering shortfalls out of general revenues, for example, would end the program’s historical self-reliance on payroll taxes. Requiring program administrators to come asking for money every year would deny retirees the certainty of knowing and planning for their future benefits.

It’s irresponsible to project such a dire outcome from Trump’s executive action. As in so many other areas of government, however, taking a chisel and hammering out even small chinks from the foundation of key government programs makes no sense. Except if the goal is to weaken or end them.