Planning Ahead
One place to start is to note that the vast majority of government programs at every level of government have no dedicated income stream. That means they are in competition for funds every budget cycle to be able to obtain and maintain their funding sources. Social Security and Medicare are different now with their specially designated primary funding source coming from payroll taxes. Even then Medicare needs additional funds from the government’s General Fund over and above payroll taxes. To understand what payroll taxes are, I think back to an old comedy routine where a young man received his first payroll check and asked “Who is this FICA and why do I owe him so much money?” The answer is so, when he retires or gets sick and disabled, there is retirement income (Social Security) and Medicare to help. It is not just for “old” people. We are talking about Social Security retirement, Social Security disability, Medicare for those 65 and older, and Medicare for those on Social Security disability for more than two years and others. The 12.4% payroll tax is split equally between employers and workers and is used specifically to fund both Social Security and Medicare. According to the AP news article, the tax raised approximately $1 trillion last year and, if lost, is projected to cut a $13 trillion hole in the federal budget over 10 years.
• The effect of permanently losing the funding source for Social Security and Medicare would be devastating.
What does it mean to lose a dedicated funding source and be funded from the General Fund as the president suggests?
It means that in every budgetary cycle it would be necessary for Social Security and Medicare to compete with other government programs and priorities to maintain their special status. These programs that are mandatory could become subject to the whims of whoever is in control at the time. This is especially true if there is a weakened Congress that defers to the president on policy and on executive orders. At this point Social Security is projected to continue with the same payouts until 2035 when payments could potentially be reduced.
There have been a few “payroll tax holidays” considered including one implemented during the Obama administration and the one proposed by Trump temporarily now. The difference in the current president’s statement noted above is to totally eliminate this special funding source if he is reelected. What should be done is to find ways to bolster the system, not to bring it into the politics of control.
Janet Colliton, Esq. is a Certified Elder Law Attorney and limits her practice to elder law, retirement and estate planning, Medicaid, Medicare, life care and special needs at 790 East Market St., Suite 250, West Chester, Pa., 19382, 610436-6674Call via Mitel , colliton@collitonlaw. com. She is a member of the National Academy of Elder Law Attorneys and, with Jeffrey Jones, CSA, cofounder of Life Transition Services LLC, a service for families with long term care needs. Tune in on Wednesdays at 4 p.m. to radio WCHE 1520, “50+ Planning Ahead,” with Janet Colliton, Colliton Elder Law Associates, and Phil McFadden, Home Instead Senior Care.