The Debate on Payroll Tax Elimination
President Trump, in a Coronavirus Task Force briefing yesterday, discussed his thoughts on cutting and/or eliminating the payroll tax withheld by employers, thereby generating immediate financial relief for workers. The 7.65% payroll tax (6.2% for Social Security and 1.45% for Medicare) represents the primary funding stream for Social Security and Medicare, and its elimination would add to the paychecks of workers struggling during this time of reduced working hours. With respect to the Social Security portion alone, the tax provided close to $900 billion to the program in 2018.
While the immediate income relief would help the economy during the anticipated rebound following the pandemic, the elimination of a major source of program funding for Social Security presents longer-term issues that would need to be resolved. In fact, Social Security’s Trust Fund reserves would be depleted much more rapidly than the 14-year horizon presently predicted.
The Association of Mature American Citizens (AMAC) recognizes the need for reform and has been sounding the alarm for several years. AMAC’s position is reflected in its Social Security Guarantee (SSG) proposed legislative framework, an approach calling for adjustments in several areas of Social Security that would ensure the program’s solvency without requiring tax increases. As a solution for future retirees, the SSG also includes a Social Security Plus feature designed to help eventual beneficiaries prepare for financial needs during retirement.
The AMAC approach assumes continuation of employee/employer contributions as the primary funding mechanism, so reform discussions will need to address a source of funding to meet promised benefits. Stay tuned for further developments on this issue!