We should be rais­ing pay­roll taxes, not cut­ting them

The Morning Call - - TOWN SQUARE - Morn­ing Call colum­nist Paul Muschick can be reached at 610-820-6582 or [email protected]

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.

DOU­GLAS SACHA/GETTY

Pres­i­dent Don­ald Trump said his ad­min­is­tra­tion was con­sid­er­ing slash­ing pay­roll taxes, which fund So­cial Se­cu­rity. Then he said it wouldn’t be nec­es­sary.

Paul Muschick

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