Menu
Tax Notes logo

Democrats Blast Possibility of Permanent Payroll Tax Cut

Posted on Aug. 26, 2020

Congressional Democrats are continuing their attacks on President Trump’s payroll tax cut after receiving a study showing that permanently eliminating the taxes would deplete Social Security’s trust funds by mid-2023.

In an August 24 letter to several Senate Democrats, Social Security Administration chief actuary Stephen Goss said that hypothetical legislation eliminating the payroll taxes paid by employees, employers, and the self-employed would bankrupt Social Security’s Old Age and Survivors Insurance (OASI) and Disability Insurance trust funds.

The letter was in response to one sent by Sens. Chris Van Hollen, D-Md., and Bernie Sanders I-Vt.; Finance Committee ranking member Ron Wyden, D-Ore.; and Minority Leader Charles E. Schumer, D-N.Y., inquiring about the impact of discontinuing the payroll tax.

Eliminating the tax would require congressional approval, but Goss explained that any legislation to do so without providing an alternate revenue stream would leave Social Security funded simply by the interest on the asset reserves. If such legislation were enacted by January 2021, Goss said, it would take about six months for the Disability Insurance Trust Fund to be depleted, while the OASI fund would last until mid-2023.

Both Schumer and House Speaker Nancy Pelosi, D-Calif., said the letter shows that Social Security would be devastated if Trump were to terminate the payroll tax. “While Trump tries to hollow out the Social Security Trust Fund, Democrats will stand strong for America’s seniors and Social Security beneficiaries,” Pelosi said.

Trump signed an executive memorandum this month directing Treasury to defer the employee share of payroll taxes that would be paid between September 1 and December 31. The directive came amid the coronavirus pandemic and the White House’s standoff with Congress over the makeup of the next relief package.

“This report confirms the devastating impact President Trump’s reckless Executive Order will have on Social Security,” Schumer said.

Schumer and other Democrats fear that the memo is only the beginning of Trump’s plans to gut Social Security, after the president made a series of remarks suggesting that he was interested in eliminating the payroll tax permanently. His press secretary later clarified that he was just referring to employee payroll taxes that are deferred under the memo.

John B. Larson, D-Conn., House Ways and Means Social Security Subcommittee chair, was even more forceful in his comments. “Every American needs to read this report! If we don’t stop President Trump’s plan, Social Security will be gone in just three years,” he said.

Goss’s letter didn’t include an estimate of how much the payroll tax deferral would reduce Social Security funding. Although the deferral is intended to go into effect September 1, Treasury has yet to provide guidance on the topic.

The deferral has drawn widespread backlash from industry groups as well, including from the U.S. Chamber of Commerce, because of the uncertainty and implementation challenges that would result.

Copy RID