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Payroll Taxes Are the Achilles Heel of Social Security

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On August 8 th , Donald Trump took four executive actions on coronavirus relief. One was a memorandum deferring, to the end of the year, payment of the employee portion of the payroll tax for employees making less than $4000 biweekly. (Employer payments had already been deferred in the CARES act.)

He did this, according to the language of the memorandum , because "This modest, targeted action will put money directly in the pockets of American workers, and generate additional incentives for work and employment, right when the money is needed most."

In an additional Trumpian flourish, he stated : "If victorious on November 3rd, I plan to forgive these taxes and make permanent cuts to the payroll tax"I'm going to make them all permanent," and : "If I win, I may extend and terminate" I'll extend it beyond the end of the year and terminate the tax."

To that effect, he included this language in the memorandum: "The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum."

The "payroll tax" is, of course, the FICA taxpart paid by the employer and part by the employeethat is earmarked for the Social Security and Medicare Trust Funds. The understanding is that Social Security and Medicare (SS&M) benefits are paid out from these funds. For FDR, that understanding "justified" SS&M in fiscally stringent terms that would make SS&M impervious to challenge from conservative politicians: "We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program."

This is the dominant paradigm about SS&M funding, shared by the vast majority of conservative Republicans, liberal Democrats, and radical leftists. Thinking in that paradigm, the vast majority of liberals and leftists immediately and strenuously protest any attempt to cut payroll taxes as inevitably undermining the SS&M programs those taxes supposedly pay for. These are, after all, the only semi-social-democratic programs U.S. capitalism has seen fit to tolerate, and we must not allow those who are trying to destroy them to succeed.

The reaction to Trump's announcement certainly follows that pattern: citing two progressive critics, Lorie Konish at CNBC reports : "Trump's payroll tax cut would 'terminate' Social Security, critics say"; Jon Queally in CommonDreams says: "Trump Just Admitted on Live Television He Will 'Terminate' Social Security and Medicare If Reelected in November," quoting Nancy Altman, president of Social Security Works to the effect that, "[Trump's] promise to 'terminate' FICA contributions if he is reelected is a full-on declaration of war against current and future Social Security beneficiaries"; and Dave Lindorff in Counterpunch says "Trump Launches Attack on Social Security and Medicare."

These are the typical responses of liberals and leftists, and not only them. As Andrew Solender reports in Forbes, "however much [Republicans] dislike those payroll taxes," they, too, understand that those taxes "go exclusively to fund Medicare and Social Security" and are loath to upset that arrangement.

We might remember that we've heard all these concerns before, though with somewhat less MSNBC/CNN/DNC hysteria. In 2011, Barack Obamaexcuse me, the Obama-Biden administration and the Democratic-controlled Congress declared a "payroll tax holiday" for exactly the same reasons as Trump just did (in a considerably more dire economic situation)because, as Obama said: "It will help families pay their bills, it will spur spending, it will spur hiring, and it's the right thing to do."

According to an NPR report in December, 2011, that holiday "reduced Social Security's revenues this year by $105 billion," though, "Obama showed no sign of being troubled by those facts when he " called on Congress to extend the payroll tax cut for another year."

Others were troubled, however, including Republican Senator Lamar Alexander, who said: "Getting rid of the way we fund Social Security through the payroll tax is a dangerous idea. Taking money from Social Security funding is a long-term raid on solvency of Social Security." The same progressive advocate quoted this month, Nancy Altman, was then "alarmed to see a Democratic administration dipping into Social Security's revenue stream to stimulate the economy," and "worried the payroll tax cut has become so popular it will be hard to end it"Many of us at the time said that it's no way this is just going to last one year. And sure enough, we're back now talking about expanding it."

So, although both Obama and Trump saw a value in sometimes cancelling payroll taxes, in order to stimulate the economy (and surely, also, because it's "so popular"), everyone from right to left agrees: it's absolutely necessary to keep the payroll taxes, because terminating them means terminating SS&M themselves, given that those taxes are necessary to fund those programs.

Except they are not, which is what Trump and Treasury Secretary Steven Mnuchin were telling us.

Here's what Trump said, "promis[ing] to protect the program": The payroll tax cut "would have 'zero impact on Social Security,'" because the program "would still be funded 'through the general fund'."

And here's Mnuchin, in an interview with Chris Wallace (Wallace's questions italicized):

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Jim Kavanagh Social Media Pages: Facebook Page       Twitter Page       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Former college professor, native and denizen of New York City. Blogging at www.thepolemicist.net, from a left-socialist perspective. Also publishing on Counterpunch, The Greanville Post, Medium, Dandelion Salad, and other sites around the net. (more...)
 

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