We should be raising payroll taxes, not cutting them
It appears that President Donald Trump has backed away from the idea of cutting payroll taxes to prop up the economy as he nears reelection. Let’s hope he doesn’t change his mind.
A temporary tax cut would bolster the working world’s takehome pay a little.
But it would endanger their future after they leave the workforce because payroll taxes pay for Social Security and Medicare.
Social Security already is precariously funded. The latest projection is that full payments can be made through 2035. After that, the fund’s reserves will be exhausted and future payments will be paid by the taxes flowing in — which would be insufficient and cover only about 75% of scheduled benefits.
For the working class, that’s a big threat, one that hasn’t been taken seriously by many elitists in the White House and Congress, both now and in the past.
For those who are well-off, such as politicians and their campaign donors, reduced Social Security benefits aren’t a big concern. A lot of them falsely consider Social Security to be an entitlement or government handout subject to political whims.
Politicians should be raising payroll taxes instead, to make up for the projected shortfall. I’m not talking about raising the rate that workers and employers pay, currently 6.2% each. I’m suggesting that we eliminate the absurdly low wage cap.
This year, workers pay Social Security taxes only on their first $132,900 in earnings. Additional earnings aren’t subject to the tax. They should be. All earnings should be subject to Social Security tax. We don’t put a cap on income tax, so why cap Social Security tax?
This is just another example of the tax system being stacked in favor of the wealthy, at the expense of the rest of us.
Eliminating the cap wouldn’t affect many people. The Center on Budget and Policy Priorities said in a 2016 report that about 6% of the workforce earns more than the cap annually. But given that many of them earn substantially more than the cap, the additional contributions would be significant.
Eliminating the ceiling, which also would result in employers paying more in Social Security taxes, would fill 88% of the funding gap, according to a report last year by Forbes.
There is precedent for lifting the ceiling. There used to be a limit on earnings subject to the Medicare tax, but that was removed in 1994.
Democratic legislators have suggested levying Social Security taxes on higher incomes, but their bills have gone nowhere. Hopefully, any plan by Trump to temporarily trim payroll taxes would meet the same fate when presented to Congress.
Tuesday, Trump said payroll cuts were being looked at. Wednesday, he said they weren’t necessary. Don’t be shocked if the thought crosses his mind again if the economy sours as the presidential campaign progresses.
If he pursues cuts, Trump wouldn’t be the first president to do it. The previous employee payroll tax cut, of 2 percentage points, occurred in 2011 and 2012 under President Barack Obama in the aftermath of the recession.
A cut of the same amount now for the same time would cost the government nearly $300 billion, according to the Committee for a Responsible Federal Budget.
That’s pocket change for politicians, though, considering the nation’s deficit was $22 trillion through June and rising faster than expected, according to a report Wednesday from the Congressional Budget Office. It upped this year’s deficit projection by $63 billion and the cumulative deficit projection for the next decade by $809 billion. The new estimates factor in the recently approved budget deal between Trump and Congress to raise the debt ceiling for two years.
The growing deficit, which also will rise because of Trump’s previous budget cuts, is a threat to Social Security because the program is an easy target for savings. The larger the deficit grows, the more attractive it may be for politicians to change how Social Security works, by reducing payments or raising the eligibility age.
Trump’s most-recent budget proposal for 2020 calls for cutting $25 billion from Social Security. His previous proposed cuts failed, and there’s no chance a cut will happen now with Democrats in control of the House.
But the danger is that down the road, the political stars could align.
It would be better if the stars aligned to eliminate, or at least significantly raise, the Social Security tax cap and finally address the looming shortfall.