Trump's Coronavirus Plan Would Gut Social Security

Trump's Coronavirus Plan Would Gut Social Security

President Trump's love affair with a payroll tax holiday or permanent payroll tax reduction continues.

Sean Williams(TMFUltraLong)
Apr 17, 2020 at 6:06AM


There's no question that the coronavirus disease 2019 (COVID-19) has changed our way of life over the past five weeks. With nearly 500,000 confirmed cases in the U.S. alone and almost 1.7 million worldwide as of one week ago, mitigation measures are absolutely necessary to stem the tide of transmission and protect the well-being of Americans.

But these unprecedented measures have also shut down nonessential businesses and, as of last week, pushed almost 17 million people to file for unemployment benefits. Without federal aid, American workers and the U.S. economy would be in very big trouble.

Last month, on March 27, lawmakers passed, and President Trump signed, the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. This $2.2 trillion package sets aside $500 billion for distressed businesses, $350 billion for small business loans, $260 billion for an expansion of the unemployment program, and $300 billion for direct stimulus payments to perhaps 175 million working Americans and seniors.

https://g.foolcdn.com/image/?url=htt...=700&op=resizePRESIDENT TRUMP GIVING REMARKS FROM BEHIND A PODIUM. IMAGE SOURCE: OFFICIAL WHITE HOUSE PHOTO BY SHEALAH CRAIGHEAD.

President Trump really, really wants to cut Social Security's payroll tax

But even this may not be enough to prop up struggling workers, their families, and the world's largest economy by gross domestic product in the short run. That's why President Trump has another proposal in mind.

In March, when the details of what eventually became the CARES Act were being worked out among legislators on Capitol Hill, Trump proposed the idea of a payroll tax holiday through the remainder of the year (i.e., April 1, 2020 to Dec. 31, 2020). The payroll tax is a 12.4% tax applied to earned income between $0.01 and $137,700 in 2020. "Earned income" means wages and salary but not investment income.

Why a payroll tax holiday? In Trump's view, passing a partial payroll tax holiday would be simple to do and put money directly into the pockets of working Americans throughout the remainder of the year. Without any payroll tax liability for the final nine months of 2020, a person earning $50,000 a year would keep an extra $2,325 if employed by someone else, or $4,650 if self-employed.

Believe it or not, a payroll tax holiday has been done before. Following the Great Recession, the Obama administration passed a partial payroll tax holiday in 2011 and 2012 for employers and employees, which reduced their liabilities by 2 percentage points. This wound up allowing workers and employers to keep around $109 billion, in total.

https://g.foolcdn.com/image/?url=htt...=700&op=resizeIMAGE SOURCE: GETTY IMAGES.

However, Trump's desire to cut the payroll tax doesn't end with 2020. When recently asked his opinion on payroll tax cuts, the President hinted that he'd like to see reductions to the payroll tax become permanent. Further, he noted that his desire to cut workers' payroll tax liability would be consistent, whether or not the country were dealing with the coronavirus. Here are some snippets of what President Trump had to say to White House reporters:

I would love to see a payroll tax cut, and I think on behalf of the people it would be quick... There are many people that would like to see it as a permanent tax cut... You'd get a lot of people a lot of money immediately. The payroll tax cut would be a great thing for this country. I would like to have it regardless of this [the coronavirus pandemic].

Trump's payroll tax cut would decimate the Social Security program

While the idea of reducing the amount of payroll tax collected might sound great, a permanent cut to the payroll tax would not be benign by any means. It would, in fact, completely gut the Social Security program and put the retirements of tens of millions of seniors in jeopardy.

The payroll tax is one of three sources of funding for the Social Security program, along with the taxation of benefits and the interest income earned in its nearly $2.9 trillion in asset reserves. Of the $1 trillion collected in 2018 by Social Security, the payroll tax was responsible for generating $885 billion. It's unquestionably the workhorse for our nation's most successful social program.

https://g.foolcdn.com/image/?url=htt...=700&op=resizeIMAGE SOURCE: GETTY IMAGES.

If Trump were granted his wish of a complete payroll tax holiday for the remainder of 2020, I'd estimate that Social Security's net-cash outflow for the year might hit $700 billion. For context, the worst single-net-cash outflow for Social Security over the past 80 years was $5.3 billion. In just nine months, the Social Security program would potentially have wiped away a quarter of its almost $2.9 trillion in asset reserves.

Now, imagine if a partial cut to the payroll tax became permanent. Not only would we witness an even quicker depletion of Social Security's asset reserves than is already expected, but it also would almost certainly result in the need for steeper cuts to retired workers' benefits just to keep the program solvent for the long run. With 62% of current retirees leaning on Social Security for at least half of their income, and another 34% counting on the program for virtually all (90%+) of the income they receive, any sort of extended reduction to the payroll tax would seriously jeopardize the ability of these folks to make ends meet.

In actuality, the most recent Social Security Board of Trustees report forecast the need to increase the payroll tax by 2.78% immediately (i.e., to 15.18% from 12.4%) in order to stave off an expected $13.9 trillion cash shortfall between 2035 and 2093. What Trump is suggesting is the exact opposite of the recommendation offered by the Trustees report.

https://g.foolcdn.com/image/?url=htt...=700&op=resizeIMAGE SOURCE: GETTY IMAGES.


Trump's payroll tax proposal has no legs

If there's some solace for current and future retirees, it's that Trump's call for a partial or permanent payroll tax holiday are almost certainly falling on deaf ears. In order to pass such a measure, Trump would need bipartisan support in the Senate and majority support in the House of Representatives. With the House led by Democrats and no supermajority in the Senate, there simply wouldn't be enough support for a payroll tax holiday if lawmakers voted according to party lines.

Even beyond party lines, I don't think there would be enough support for a measure that would almost certainly gut the Social Security program.

In other words, current and future Social Security beneficiaries will be receiving a payout -- assuming they qualify for one -- and the payroll tax is the main reason why. As long as the payroll tax remains the program's primary funding mechanism, Social Security is incapable of going bankrupt.

https://www.fool.com/retirement/2020...-security.aspx

Gut the funding to the U.N. and WHO.

Boot the U.N. off our soil, all members of corrupt failed countries who cannot run their own state of affairs. Prime N.Y. real estate. Give them Notice to Vacate off our soil.

Gut the One Billion a year to Churches who are bringing refugees to our country and FURTHER dumping them on our backs to pay for in our communities with free stuff. It is not free. I do not want to fund the Churches human trafficking of foreign citizens. They have no right to come here. The Church needs to lose their tax-exempt status and start paying up the taxes like the rest of us saps! They are men, no better, no worse than you or I and they need to pay up. It is nothing more than a big money making business now. And they are not above the law either.

Gut the spending on Detention Centers. Billions of our dollars housing, feeding, giving medical care to illegal aliens. Millions spent on lawsuits by these illegals. They have no rights here. Catch them, process them, and deport them back over the FIRST border they illegally crossed within one hour of apprehension.

Gut the "free" airplane rides of deportees. We are not their Travel Agent, it is not free, and it is costing us a fortune. Let their Embassy pay for their transportation back home.

Gut the UAC Detention Centers. Shut them down. Those children are foreign citizens, they are not ours to keep, send them immediately back into the care and custody of their President. I do not want MY tax dollars used to house, feed, educate, or give these foreign citizens medical care. That is their countries responsibility.

Gut the refugee, asylum, TPS, and illegal alien programs. We owe them nothing. We are spending billions on this. They are their President's responsibility. We cannot allow BILLIONS of people on the planet to come here and crush us, take our housing, and contribute to more poverty.

Gut the Anchor Baby Scam and end Birthright Citizenship. They are not U.S. citizens. Billions more of our money paying for foreign citizens who give birth here, and a lifetime of welfare, food stamps, healthcare and school. These people who come here on Visa, or come here illegally, are "visitors", they are not Legal U.S. Citizens and neither is that child. Issue them a Certificate of Child Born Abroad and get them off our soil.

Gut the Foreign Aid Budget. Stop giving countries billions of our dollars for decades while they continue to fight, rape, and overbreed in poverty. Give them nothing! No more money, no aid, and no oatmeal. We have our own to take care of. They need to stand on their own two feet and this has got to stop.

Gut the military fighting budget. No more nation building or fighting never ending wars costing us TRILLIONS of dollars.

Line Item Veto all our budgets. No more pork spending Bills bankrupting this Nation.


We do not have a money problem. We have a Swamp Rat waste, fraud, and abuse of our money problem.

Trillions of OUR dollars that should be replenishing our Social Security and Medicare Funds. Trillions of dollars that should generate a building boom putting LEGAL U.S. citizens to work.


No more foreign labor, we have millions to employ.

Gut the welfare and food stamp programs. You get help for ONE kid for 3 year lifetime maximum benefit and not one more dime. Get on birth control, get a vasectomy, get a tubal ligation. I do not care what you get, but we do not want to fund your romp in the sack. This is totally disgusting, and has gone on for far too long.

We need radical change, we need to stop this waste of our tax dollars.

Why does the president not have a line item veto?
Grant and Ronald Reagan have sought line-item veto powers. It was not until the presidency of Bill Clinton that Congress passed such legislation. Intended to control "pork barrel spending", the Line Item Veto Act of 1996 was held to be unconstitutional by the U.S. Supreme Court in a 1998 . . .

Line-item veto - Wikipedia