Trump implementing executive order payroll tax cut would dent Social Security and Medicare finances, economists warn

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  • Economists warn that if Trump passes a payroll tax cut, it would weaken the fragile finances of Social Security and Medicare trust funds.
  • It is unclear whether the president will attempt to replace the funding like Congress did when it postponed employer Social Security tax payments earlier this year.
  • “It’s like borrowing money from Social Security and Medicare trust funds to give employers just to hold,” said Seth Hanlon, a tax expert.
  • Visit the Business Insider homepage for more stories.

A group of think tank economists warn that if President Donald Trump goes ahead with a payroll tax cut through an executive order, the move would weaken the mechanisms for funding social security and health insurance.

Over the past week, the president has threatened to bypass Congress and sign an executive order to enact a payroll tax cut. The tax refers to the 15.3% payroll levy imposed by the federal government and shared equally between employers and workers. Most of it finances Social Security, but it also helps fund Medicare.

But experts believe the move would further erode the fragile finances of the two safety net programs by wresting a critical source of funding.

“Trump’s regime would weaken Social Security and Medicare trust funds by diverting income from employees of Social Security and Medicare taxes, and potentially from the employer Medicare taxes, program trust funds, ”notes the memo from the Center for Said American Progress.

Earlier this year, Congress postponed the employer portion of the Social Security tax (6.2%) until 2022 under the CARES Act. But they replaced the lost money with an infusion of general treasury funds.

Trump, according to the memo, does not have the authority to allocate funds, which is in the hands of Congress.

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Many economists say that implementing a payroll tax cut through a decree would not lead to higher wages for most workers, since the executive branch can only defer tax payments only up to a year and not forgive them. Erasing the payment forces Congress to act.

Legally, employers remain at the mercy of any late payment. Businesses would likely keep the money because they fear they will be facing a hefty tax bill if Congress does not forgive it.

“It’s like borrowing money from Social Security and Medicare trust funds to give employers just to hold,” Seth Hanlon, a tax expert and senior researcher at the Center, told Business Insider. left wing for American progress. “They’re just going to withhold the taxes withheld because eventually they’ll have to pay them.” ”

The massive wave of layoffs due to the pandemic has weakened the finances of the programs by reducing the amount of payroll tax revenue flowing into their trust funds. About 13 million fewer people are employed in July compared to February.

The Bipartisan Policy Center predicts that if the economic damage is similar to that of the Great Recession a decade ago, Social Security trust funds could be depleted in 2029. This could lead to a 31% reduction in pension benefits, the organization said.

Before the pandemic, administrators of this program estimated that funding for the program would expire in 2035 without taking into account the coronavirus epidemic.

The Medicare trust fund is in worse shape. Its administrators said the program will run out of money in 2026 – also regardless of the pandemic.

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