Terminating payroll tax could deplete Social Security by 2023, chief actuary warns

Upon signing an executive order deferring the payroll taxes paid by employees until the end of the year on August 8, President Trump made the ostentatious promise that he would cancel the tax altogether if he were to be reelected in November. "If I'm victorious on November 3, I plan to forgive these taxes and make permanent cuts to the payroll tax," he said at the time, reports The Hill. "In other words, I'll extend beyond the end of the year and terminate the tax." The Social Security Administration, however, does not think this would be a good idea.

Responding to a letter from Congressional Democrats enquiring about the implications of such a policy on the trust funds, Social Security Administration Chief Actuary Stephen Goss laid out how this move would play out in the long run. Eliminating the payroll tax could deplete the Social Security trust fund within three years if there's no alternative source of revenue, he predicted in a letter to Sens. Charles Schumer, D-N.Y.; Bernie Sanders, I-Vt.; Chris Van Hollen, D-Md.; and Ron Wyden, D-Ore., who had requested the analysis. The actuary's analysis was based on hypothetical legislation that would not take money from the general fund.

"If this hypothetical legislation were enacted, with no alternative source of revenue to replace the elimination of payroll taxes on earned income paid on January 1, 2021, and thereafter, we estimate that [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," Goss wrote in his letter to the Senate Democrats. "We estimate that [Old Age and Survivors Insurance] OASI Trust Fund reserves would become permanently depleted by the middle of the calendar year 2023, with no ability to pay OASI benefits thereafter."

Van Hollen — who spearheaded the letter to Goss — issued a statement rejecting the prospect of a permanent payroll tax cut after receiving the actuary's analysis and vowed to fight the policy. "Trump’s payroll tax cut plan not only fails to help Americans struggling to get by right now, [but] it would also completely decimate Social Security for the millions of Americans who rely on it," he said. "This analysis makes clear – this is another thinly veiled attempt to gut Social Security and go after the American people’s hard-earned benefits. We can’t let Trump get away with this and will do everything in our power to prevent this disastrous policy from ever going into effect," Van Hollen added, reports CNBC.

Nancy Altman, president of the progressive advocacy group Social Security Works, also spoke out against the prospect of getting rid of the tax altogether. "If Donald Trump is reelected, Social Security will cease to exist before the end of his second term," she said in a statement in reaction to the Goss letter. Meanwhile, according to NBC News, House Speaker Nancy Pelosi said that the analysis "shows the swift potential devastation of President Trump’s reckless call to 'terminate' the payroll tax: shattering the sacred promise of Social Security."

The Trump administration was quick to dismiss these concerns with White House economic advisor Larry Kudlow saying in a Tuesday interview: "There is no plan to eliminate Social Security taxes. I don't know where that idea came from. It's not true." Tim Murtaugh, director of communications for Trump's re-election campaign, also issued a statement addressing the matter. "The president has clearly stated repeatedly that he will always protect Social Security and Medicare, including from Democrats pushing plans to give benefits to illegal aliens," he said.

However, as CNN points out, Trump wouldn’t be able to terminate the payroll tax unilaterally. Only Congress could eliminate the payroll tax and given the makeup of the current Congress, the Democratic-controlled House would almost definitely block such a proposal. Trump's call for a payroll tax cut has also found little support from the Republicans in the current Senate as it would do nothing to help the millions of Americans out of work due to the pandemic. Although the President claims eliminating the tax would have no impact on Social Security since the money would be shifted from the government's general fund, this would require an act of Congress.