Trump's Plan To Terminate Payroll Tax Could End Social Security Benefits By 2023: Chief Actuary

Trump's Plan To Terminate Payroll Tax Could End Social Security Benefits By 2023: Chief Actuary

Social security provides financial benefits to the most vulnerable of society. Without this, Americans would be hit severely every day.

Image Source: Photo by Alex Wong/Getty Images

Earlier this month, President Donald Trump announced his plans to temporarily terminate the payroll taxes for employees who make less than $100,000 per year. An executive order was signed by him to temporarily stop employers from deducting money from the employees' paychecks. He then promised to permanently remove payroll taxes if reelection for another term. "If I’m victorious on November 3rd, I plan to forgive these taxes and make permanent cuts to the payroll tax," he said, adding that it would save families thousands of dollars, according to CNBC. But is this move the best solution to help rebuild the American economy? Well, experts seem to disagree. 


Payroll taxes are an important component of America’s tax system which are used to fund crucial government facilities, including the Social Service Program such as Federal Unemployment Insurance (UI), Old-Age, Survivors, and Disability insurance (DI), and Medicare. The social insurance taxes makeup 23.05 percent of combined federal, state, and local government revenue and are the second-largest source of government revenue in the United States, as per a recent Tax Foundation research.


Social security provides financial benefits to the most vulnerable of society like the elderly, disabled workers and their spouses, or dependents. Without this, every American would be hit severely as eliminating the payroll tax could completely deplete the Social Security trust fund over a few years unless an alternative source of revenue is introduced to bridge this gap. After the POTUS declared his plans, four Democratic senators asked the agency to run the number in case Trump is elected to serve another term as the leader of the country. The agency's chief actuary, Stephen Goss, noted that if the payroll taxes are eliminated permanently, it would dry up the federal fund within three years, without any other source of revenue, leaving the elderly, the disabled and their dependant members to suffer. 


Goss also added if the termination was to happen in January next year, the Disability Insurance (DI) Trust Fund “asset reserves would become permanently depleted in about the middle of the calendar year 2021, with no ability to pay DI benefits thereafter,” per the estimation of the Social Security Administration, reports NBC News. Everything from Social Security Old Age to Survivors Insurance (OASI) Trust Fund for retired workers will suffer due to this as the reserves "would become permanently depleted by the middle of the calendar year 2023, with no ability to pay OASI benefits thereafter." House Speaker Nancy Pelosi reacted to the analysis and said that it "shows the swift potential devastation of President Trump’s reckless call to ‘terminate’ the payroll tax: shattering the sacred promise of Social Security."


Even Senate Minority Leader Chuck Schumer reacted to this estimate and said, "President Trump’s plan to eliminate Social Security’s dedicated funding would endanger seniors' Social Security and could mean the end of Social Security as we know it by 2023." But Trump claims that the elimination of these taxes would have no impact on Social Security as the money from the government's general fund would simply be shifted there. Treasury Secretary Steven Mnuchin seemed to agree with that notion. "There would be an automatic contribution from the general fund to those trust funds. The president in no way wants to harm those trust funds, so they would be reimbursed, just as they’ve always been in the past when we’ve done these types of things," said Mnuchin. But it's not that simple.


Currently, Social Security has $2.9. trillion as reserves, while payroll taxes helps bring in $1 trillion annually. "If he throws it until the end of 2023, then benefits will stop because there’s not enough money in the accumulated reserve," said the president of Social Security Works, an advocacy organization, Nancy Altman. Even using general revenue to fund Social Security would require an act of Congress as Trump cannot do it unilaterally. "[Trump] certainly will make the case that he has the power. It’s not clear to me that he has," said Altman. The Democratic-controlled House would surely obstruct any such proposals from passing and a number of Republicans have already rejected calls for payroll tax cuts. 

Responding to Trump's recent assurance, "If I win, I may extend and terminate. In other words, I’ll extend it beyond the end of the year and terminate the tax," Altman said, "If you terminate the funding, you terminate the program." 

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