President Trump’s Tax Break Could Hurt Social Security — But It Won’t Completely Destroy It
Social Security experienced serious financial difficulties long before the onset of the COVID-19 pandemic. Earlier this year, program administrators announced that if lawmakers don’t step in with a fix, Social Security will likely have to cut benefits as early as 2035, when its trust funds were originally scheduled to run out of money.
But a recent move by President Trump could make those benefit cuts happen sooner. Earlier this month, the President signed a Executive Decree which seeks to defer employee payroll taxes from September 1 to the end of 2020. The purpose of this order? Provide relief during the pandemic by offering workers higher wages.
To be clear, the ordinance does not entirely exempt workers from paying these taxes; it just gives them more time to shell out that money. What is more troubling, however, is that the president has said that if re-elected he will seek to permanently cancel those four months of payroll taxes. And if that happens, Social Security may have to implement benefit cuts well before 2035.
But despite the panic caused by the presidential decree, the reality is that waiving four months of payroll taxes will not be enough to destroy Social Security. And that should reassure current and future beneficiaries.
Social Security won’t go away
Right now, Social Security’s worst-case scenario is a reduction in benefits. This is far from having the program disappear completely.
Although social security Is losing several months of payroll tax revenue, all it will do is bring forward the date when his trust funds will run out and benefits will be reduced accordingly. And that’s assuming lawmakers don’t find a way to prevent that from happening.
There are several proposals underway that seek to save Social Security from financial ruin and prevent the reduction of benefits. One idea, for example, is to increase the salary cap which applies to social security contributions. Currently, workers only pay taxes on their first $137,700 of earnings. This figure changes from year to year, but raising it to a much higher threshold would certainly be a way to inject more revenue into Social Security.
Another idea is to raise full retirement age, or the age at which beneficiaries are allowed to collect their full monthly benefit based on their income history. Currently, people born in 1960 or later reach full retirement age at 67, but as life expectancy has increased, there is talk of raising that age to 68 or even higher later, which would put less of a strain on Social Security resources while keeping people in the workforce longer to generate additional tax revenue for the program.
Of course, these proposals have their drawbacks, and these are just a few suggestions floating around. The thing is, while depriving Social Security of four months of payroll tax revenue would be devastating to the program’s finances, it wouldn’t completely destroy it either. And that’s something the public can take comfort in.