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Trump's Payroll Tax Cut Could 'Drain Social Security Trust Fund'

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President Donald Trump’s executive order on the payroll tax cut could “drain the Social Security trust fund,” Sen. Ron Wyden, D-Ore., a ranking member on the Senate Finance Committee said over the weekend.

“While employers are unlikely to risk a massive tax liability by not collecting payroll taxes or having to double up collection later, if they do go along with this stunt, it would drain the Social Security trust fund,” Wyden explained in a statement.

“This fake tax cut would also be a big shock to workers who thought they were getting a tax cut when it was only a delay. These workers would be hit with much bigger payments down the road,” he added.

In separate comments Monday morning on MSNBC’s Morning Joe program, Senate Minority Leader Chuck Schumer, D-N.Y., stated that Trump’s unemployment order, which allows for $400 weekly jobless benefits, “is not going to be able to be put into place for a month or two, if at all.”

The unemployment order would, according to Wyden, “throw already overburdened state unemployment insurance programs into chaos, making it harder to get benefits out the door.”

Trust Fund Issues

Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League, told ThinkAdvisor in a Monday email message that the Medicare Hospital Insurance Trust Fund “was also already in danger of becoming insolvent sooner than the currently estimated year of 2026 due to the crushing impacts of COVID-19.”

Johnson explained, “Decreasing the revenues going into this program at this time is like pushing Medicare off the cliff.”

Where will the funding come from “to cover Social Security and Medicare benefits of the more than 61 million retirees who depend on current payroll tax revenues to cover their Social Security and Medicare benefits?” she asked.

A recent Senior Citizens League poll found that the No. 1 concern for retirees “is that a few years from now, benefits for both programs will have to be permanently cut to pay for this ‘temporary’ payroll tax cut,” Johnson pointed out.

A payroll tax cut, she added, “does not help people who have lost their jobs and need help the most. Employers have already received a payroll tax cut deferral for two years through earlier stimulus legislation.”

“Donald Trump’s authoritarian act of suspending collection of Social Security contributions raids Social Security of its dedicated revenue,” added Nancy Altman, president of Social Security Works, in a separate email to ThinkAdvisor.

“Trump claims his power grab is about the economy, but that is ridiculous on its face. Since this is simply a deferral, employers will hang on to the money they withhold in anticipation of owing it in the future. Workers will not see a dime,” explained Altman, who heads the group pushing to expand Social Security.

“Consequently, this will do nothing for the economy. But it will undermine Social Security and with it, the economic security of all working families,” she stated.

Additional Views

Trump’s orders for pandemic relief “are confusing and at least partly unconstitutional,” Greg Valliere, chief U.S. policy strategist for AGF Investments, said in his Monday morning email briefing, noting that Democrats are launching lawsuits to stop the orders.

The president said during a Saturday press briefing that “states will be asked to cover 25% of the cost” of the unemployment benefit by using existing funding.

Wyden said he’s “heard grave concerns from states about this proposal, and they are simply going to opt out. Their budgets have been crushed. They cannot afford a 25% match, especially when unemployment trust funds are under tremendous strain and Republicans oppose funding for state and local governments.”

Trump signaled Sunday that the federal government could pick up the entire $400 unemployment benefit if governors make a request.

The orders defer payroll taxes for employees earning $100,000 or less annually, suspend student loan payments through the end of 2020, assist renters and homeowners with lease and mortgage payments.

Calling the orders “unworkable, narrow and scanty,” Schumer said he now hopes that Republicans will come back to the negotiating table. “The Republicans, you know, they’re in a pickle.”

The Democrat explained, “You have 20 of them who don’t want any [stimulus] money whatsoever, but then you have 10 or 15, many running for re-election, who are desperate to get a package. And they’re all hanging their hats on this executive order, ‘Oh that will solve the problem and we won’t have to do anything.’ Well, now it’s clear that these executive orders are going to be minimal at best.”