Trump vowed, if re-elected, to kill the payroll tax, which funds Social Security and Medicare. Do most Americans understand what that means to them?
Michael Hiltzik of the Los Angeles Times explains the dangers of Trump’s executive orders.
With his four executive orders purportedly aimed at relieving Americans of the burdens of the coronavirus, President Trump spun the theme of his administration — the Art of the Con — up to a higher level.
The orders he signed Saturday include a supposed moratorium on evictions and foreclosures, a deferral of student loan payments and an extension of federal unemployment benefits.
The moratorium is unlikely to stop a single eviction or foreclosure, however. The deferral of student loan payments is short-term and narrower than what Congress put in place in May, and that has expired.
The extension of unemployment benefits reduces the federal share to $300 a week from $600, will last only four to six weeks and imposes insurmountable barriers on states to achieve even that much.
But the most potentially far-reaching order concerns the payroll tax, which funds Social Security and part of Medicare. This order, along with comments Trump made at the signing ceremony, pose a mortal threat to the 64 million Americans who currently receive Social Security benefits and the hundreds of millions more who will receive benefits in coming decades.
If he’s reelected, Trump said, he will “terminate” the payroll tax. Make no mistake: He’s talking about bankrupting Social Security.
It’s rare that a president has made such a compelling case for his own electoral defeat. Yet his campaign was so proud of this threat that it tweeted out Trump’s words within minutes.
Social Security advocates weren’t nearly so sanguine.
“This is all a very well thought-out campaign to undermine Social Security and Medicare,” Wiliam F. Arnone, chief executive of the National Academy of Social Insurance, told me. The order threatens to “erode the economic security of millions of Americans, without bringing meaningful relief for unemployed workers or employers.”
Rep. John B. Larson (D-Conn.) the sponsor of a proposal to expand Social Security, called the order “the single worst way to get relief to beleaguered Americans … stealing from their retirement to make up for the administration’s failure to contain the virus.”
He’s right. We’ve written before that cutting or deferring the payroll tax does almost nothing for the vast majority of working Americans, not to mention those out of work, would overwhelmingly benefit the rich, and would knock the key source of financing out from under Social Security while opening the door to massive benefit cuts.
Trump’s executive order boasts of its being a “modest, targeted action.” It’s anything but. The order says it will “put money directly in the pockets of American workers … right when the money is needed most.” It won’t do that.
Trump nevertheless has been obsessed with the idea of a payroll tax cut, for reasons that are impossible to apprehend. One might not have thought this possible, but his executive order makes things even worse.
The most incisive line about the order belongs to Nobel economist Paul Krugman, who tweeted that “payroll tax cuts are the hydroxychloroquine of economic policy. They won’t do anything to solve the employment crisis, but will have dangerous side effects.”
Trump has been obsessed with cutting the payroll tax since the dawn of his presidency. But in his latest attack he may be working from a strategy crafted by Stephen Moore, a right-wing economic advisor whose hostility to Social Security is manifest.
Moore laid out the payroll tax plan in an Aug. 2 op-ed in the Wall Street Journal. Moore said the Treasury should “instruct the Treasury to stop withholding payroll taxes,” though it’s not the Treasury but employers who do the withholding. (More on that below.) But then again, being right isn’t necessarily part of Moore’s credentials.
To better understand the dire implications of Trump’s order, let’s take a closer look.
As a foundation, keep in mind that the payroll tax comes to 12.4% of wage income up to an inflation-adjusted cap — this year, $137,700. The tax is evenly split between employees and employers, who must pay their 6.2% share and also withhold the employee share from their paychecks and pay it over to the Treasury.
Another 2.9% of payroll, uncapped, is also shared between employer and worker to fund part of Medicare.
The centerpiece of the executive order is an interest- and penalty-free deferral of payroll taxes for four months, from Sept. 1 through Dec. 31. This is tantamount to an interest-free loan to workers of up to four months. After that period, the deferred tax will have to be paid.
Social Security experts say deferring the tax payments falls within Trump’s authority. But if he remains president and moves to eliminate the accrued debt, that can’t be done without the assent of Congress.
The terms of the deferral place a huge administrative burden on employers, whether big or small. The order applies only to workers earning less than $104,000 a year, or $4,000 per biweekly pay period. Employers will have to determine which workers fall within that zone, possibly recalculating every two weeks.
How the deferral is supposed to work in practice is murky. Under federal law, employers are required to withhold the payroll tax from paychecks. Nothing in the executive order changes that, despite Moore’s proposal. So several outcomes are possible.
One is that employers will continue to withhold the tax from workers — placing the amount equal to the deferral in escrow or paying it over to the Treasury and claiming a refund to be passed back to employees after Dec. 31.
As Seth Hanlon, a former economist for the Obama administration, observes, in that case the order provides employers with an interest-free loan of up to four months. Meanwhile, workers won’t see a penny more in their paychecks.
Another is that they will cease withholding the tax for those four months. That places a burden, however, on workers, since the tax isn’t eliminated, just deferred. They’d likely have to repay the tax with their annual tax filings next April 15. The risk here is that many workers won’t adjust their spending to cover the obligation.
For a worker earning $60,000 a year, the deferral comes to less than $100 a week. That may help a truly strapped family (though it would be better for that household to receive assistance in a lump sum). But at the end of the year, the family will owe $1,530. That may come as quite the shock.
Then there’s the cutoff of deferrals for anyone earning $104,000 or more. Those whose employers have ceased withholding face a sheer cliff in take-home pay: Earn $103,999, you get the deferral — in effect, a temporary, repayable 7.65% bump in the paycheck. Earn a dollar more, you don’t.
Trump plainly sees this stunt as a way to blame Democrats for that tax bill, not to mention the apparent tax increase when the deferral ends and payroll taxes revert to their full level. Democrats “will have the option of raising everybody’s taxes and taking this away,” he said at the signing ceremony.
In other words, he’s offering voters a bribe — in effect, “elect them and you’ll have to pay what you owe; elect me and you’ll get a pass.” This raises cynicism to an electoral principle, but it’s fair to wonder if the American voter is dumb enough to fall for it.
The most frightening aspect of the payroll tax order is its impact on Social Security itself. The payroll tax is the program’s single largest revenue source. It’s been tampered with before, notably when congressional Republicans forced Obama to accept a temporary cut of two percentage points in the payroll tax as a stimulus measure. As we’ve reported, that wasn’t a great idea, but the administration was backed into a wall by a GOP majority.
But even then, the cut was accompanied by an explicit arrangement to make up the revenue loss to Social Security from the general fund. The Treasury made good on that promise, paying more than $225 billion into Social Security from 2010 through 2015.
But there’s no such backstop in Trump’s executive order. By my calculations, based on the system’s 2019 revenue and income for 2020 as projected by the Social Security trustees, the four-month deferral will deprive the system of nearly $333 billion in real-time income. Even if the money is ultimately repaid, Social Security will have lost an estimated $9 billion in interest on that revenue, permanently.
More permanent would be the impact on the system if Trump is reelected and eliminates the payroll tax. In that case, says Nancy Altman, president of the advocacy group Social Security Works, the Social Security trust fund, which currently holds $2.9 trillion in assets, would be completely depleted within four years.
“There would be no contributions coming in and no interest on the trust fund because it would have been drawn down. There would be no money to pay benefits. The whole program would just shut down.”
No one need guess what would happen to Social Security if it’s transformed from a program with its own independent revenue sources into one dependent on appropriations by Congress.
The evidence from other such programs — food stamps, Temporary Assistance for Needy Families and, indeed, unemployment benefits — is in front of our eyes: Benefits can be slashed by congressional whim and the programs disemboweled.
This is all the consequence of having “a completely lawless, corrupt president in the White House, and Republicans not checking him,” Altman said. Indeed, in a statement about the executive orders, Senate Majority Leader Mitch McConnell (R-Ky.) said he was “glad that President Trump is proving that while Democrats use laid-off workers as political pawns, Republicans will actually look out for them.”
Has he even read the executive orders? And if so, how could he make such an absurd statement? Or is he just falling for the con?
Republicans have been trying to kill the New Deal since before it was born. Ronnie Raygun filled the bathtub and the GOP has been shredding and shoving the entire social safety net baby under the water at every chance they get. Each new crisis, each new disaster is somehow always just another excuse for ripping one more hole in the social fabric.
Trump and McConnell hope to kill FDR’s New Deal in its entirety. Send us back to the 1920s. Dystopian vision.
Good morning, Diane,
YES … that dump and McConnell are DYSTOPIAN. They hate others because they hate themselves.
Thank you for your blog.
If Trump wins election in 2020, he can probably count on a few Dems to help him exploit the 99%. In July, the Boston Globe (mouthpiece of billionaires) endorsed Jake Auchincloss (a former Republican) for Joe Kennedy’s seat. Auchincloss was all in for charter schools when he wrote his views in 2016. Not surprisingly, Jake’s recently exposed comments about race match up with what the NAACP and BLM suspect about charter school supporters.
Racist Georgia Gov. Talmadge first supported privatization.
When FDR was proposing Social Security, the GOP was screeching that it would lead to communism and totalitarianism. When LBJ was proposing the creation of Medicare and Medicaid, Reagan said that it would lead to socialism and a loss of freedom. Nothing changes with the GOP. The libertarians are of course opposed to all these essential programs, they say that taxation is theft, Social Security is a Ponzi Scheme and that the Social Security trust fund is bogus and full of worthless IOUs. All lies, the trust fund is full of special issue savings bonds backed by the full faith and credit of the US government: quote – By the end of 2019, the trust funds had accumulated nearly $2.9 trillion worth of Treasury securities, earning an average interest rate of 2.2 percent during that year. The Social Security Administration provides monthly reports on the investment holdings of the trust funds, their maturities, and interest rates. The trustees project that the trust funds will earn $78 billion in interest income in 2020. end quote from cpp.org
This is why the libertarians, hard right wingers and so many GOPers love Trump because he’s working overtime to kill off these essential social programs. He may succeed with a 2nd term.
There is a flip side to everything you write. I support Medicare and Social Security. That said I am perfectly happy with my employer health insurance but I have no choice but to register with Medicare when I turn 65. That is a loss of freedom.
I am single with no children. I have paid hundreds of thousands of dollars into Social Security with matching contributions made by my employer. When I die, the money is all swallowed up by the government bureaucracy. Unlike an IRA, 403b or 457 plan accounts, you can’t leave these monies and whatever interest they have earned to the loved ones of your choice It is all gone. Forever. I have no choice but to participate in Social Security. It is mandatory. That is a loss of freedom.
It is also the promise of some measure of security in your old age.
PST-
Your employer’s healthcare insurance won’t look so good to you after age creates medical pre-conditions that exclude you from coverage.
Secondly, the services you buy as a consumer will be priced out of your ability to pay as insurance premiums for workers’ rise.
You, unlike the other people at the blog, want a third world nation where there is begging on the streets and children combing dump sites for food. Your selfishness is typical of libertarians who advise people die like dogs in the gutter.
The rules that protect your 403b investment are the work of Democrats. You advocate for conditions that led to the 2008 financial Armageddon because you’re slime like Pete Peterson.
I am retired, thank God for Social Security and Medicare. If not for Medicare, I might have gone bankrupt from medical and drug costs or at the least, taken a huge financial hit from going to the ER 2 times in the last 10 years. Fortunately, it turned out to be nothing serious both times but the bills were in the tens of thousands and I only paid the $35 co-pay and less than $200 for the 2nd ER incident. SS deposits close to $2k on my checking account each month. SS has not failed to make monthly payments through wars, recessions and various GOP administrations. My recent cataract surgery only cost me $75. The actual cost would have been about $5k. Regular visits to doctors, including ophthalmologists, only cost a $10 co-pay. What’s not to like?
You DO NOT HAVE to take Medicare when you retire! A few years ago, when I was turning 65, I was given the choice of either demonstrating I already had health insurance elsewhere or, if not, THEN they would assume I wanted Medicare. I could not afford other coverage so I am very glad to have Medicare.
Also, Social Security death benefits do go to a spouse or your dependent children if you die.
I would like to see the numbers and precise names assigned to the four Executive Orders mentioned in this article and read these myself. They are too recent to be in the Federal Database of Executive Orders.
Also, article does not speak to the self-employment tax paid by workers in the gig economy or otherwise earning a living without having an “employer.” Many of these workers are in the arts and free-lancers in tech. The proportion of gig workers has been increasing and the pandemic has led many to free lance work. As I recall, that self-employment tax is slightly over 15%. Most of that goes to SS. A small portion goes to Medicare.
You point out an important fact about SS and Medicare. These are earned benefits that workers have contributed to for their entire working careers. It is all part of the common good to ensure that elderly people can live with dignity. Vulnerable groups depend on social safety nets.
Ending Social Security has been the dream target of Koch think tanks, Multinational corporations, The Pete Peterson Foundation, Republicans & Libertarians since its inception. The AARP has been keeping an eye on the ongoing tinkering by Congress and lobbyists.There are successful legal & structural changes made to mask the assault by doing things like cutting the payroll tax & exempting corporations from paying FICA for contract workers.
If tRump wins re-election he’ll gut more than Social Security, just about anything public will go to the lowest bidder. They want the US to be like a third world country.
If you want to learn more about the Koch efforts to eliminate Social Security, read Nancy McLean’s “Democracy in Chains.” Their first stealth effort was to make Social Security need-based, rather that a universal guarantee. This was clever, because Social Security is a program everyone pays for. If it’s available only to the poor, then it’s less popular and likely to be attacked, whittled away, and stigmatized. Thus far, Social Security has withstood all attempts to privatize it. But now a Trump is directly attacking the source of its funding—the payroll tax—andcharacterizing it as a tax break for working people. Will they fall prey to this trick?
Everyone should read Democracy in Chains. It is quite a tome (413 pp.) to slog through (I found it very depressing), but it’s essential reading.
Ignorance may be bliss, but just where has that gotten us?
I am still infuriated at the number of people who don’t know (or care to investigate) what ALEC stands for: it’s going to be 50-years-old in 2022!
If you have not done so yet, read Gordon Lafer’s “The One Percent Solution.”
I keep seeing low information people (who are mostly Trump supporters) write about how they are celebrating the Payroll Tax deferment, as if it is a genuine tax cut for working people, when the brutal truth is THIS is what is going to happen to the EARNED BENEFITS that workers have been paying towards for decades: “if Trump is reelected and eliminates the payroll tax… the Social Security trust fund, which currently holds $2.9 trillion in assets, would be completely depleted within four years.”
Since the time when many workers in this country got pensions has long passed, that horrific outcome, looming within just 4 years, should be shouted to the rooftops, because without Social Security as a safety net for the retirement years, a hell of a lot of people are very likely to become homeless and hungry in their old age. And take it from me, that’s a hole which is nearly impossible to climb out of by yourself, especially when you are a senior, your health is declining and you have no family support.
If Trump is reelected (according to ThreeFiftyEight, he has the same odds of winning that he had in 2016, 29 for Trump to 71 for Biden), and the GOP holds on to its slim majority in the Senate, Trump will destroy SS and Medicare. Then poverty will return to where it was in 1900, to 40 percent.
https://projects.fivethirtyeight.com/2020-election-forecast/?ex_cid=trump-approval
Also, if Betsy the Brutal DeVos stays as the head of the DOE, and she continues to destroy public schools, her goal will be to return to the HS graduation rate of 1900 when there was an exclusive 7-percent high school graduation rate for the children of wealthy white people like her.
Maybe, TrumpEekThinlySkin and Besty the Brutal will throw the working class a brittle bone and at least let the children of the working class graduate with something at the end of 6th grade before they have to find a job somewhere doing anything.
“This raises cynicism to an electoral principle, but it’s fair to wonder if the American voter is dumb enough to fall for it.” …..This is the biggest problem! American voters ARE dumb enough to fall for it. They will shoot themselves in the foot and then blame everyone else for having a bum foot that doesn’t work. We really live in an “Id” type of society…..I want what I want and I want it now! No thinking involved….just gimme the $ now!
Fox appeals to bigots who don’t want to think. It also appeals to the highly selfish, those who want to prosper at the expense of others.
Great piece!