Personal Finance

Congressional lawmakers worry Trump’s payroll tax deferral will hurt Social Security

Key Points
  • Washington is rife with tension as lawmakers struggle to come up with another stimulus bill.
  • Another controversial issue, President Donald Trump's payroll tax deferral, also prompted clashes on the Hill this week.
  • While the tax break is temporary, many worry the president plans to permanently do away with those levies, which would hurt Social Security.
zimmytws | iStock | Getty Images

The stimulus stalemate has pitted Democrats and Republicans against each other on Capitol Hill.

But another issue — Social Security and its ability to pay retirement, disability, survivor and other benefits into the future — has also created a rift between leaders of the two parties.

Congressional lawmakers gathered on Thursday in a House Ways and Means Committee meeting titled "Save Our Social Security Now."

There, Democrats and Republicans clashed over whether Trump's move indicates a broader plan to permanently eliminate the payroll taxes that fund the program.

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Trump put a temporary payroll tax holiday in place through an executive order he signed in August. It allows employers to defer workers' portion of the Social Security payroll tax — 6.2% on wages up to $137,700 — to be temporarily suspended from Sept. 1 to Dec. 31. This only applies to workers who make less than $4,000 bi-weekly.

Those taxes would have to be repaid starting in January, though Trump has signaled he wants to permanently forgive those payments if he is re-elected. Based on what the president has said, some worry he wants to do away with payroll taxes altogether.In a clip played during the hearing from a White House press conference on Aug. 10, Trump called the tax holiday a "tremendous saving for people."

"After the election, on the assumption it will be victorious for an administration that's done a great job, we will be ending that tax," Trump said. "We will be terminating that tax.

"On the other hand, the other group wants to raise taxes, and they want to leave it where you pay it."

If I get re-elected, I will be terminating the payroll tax: Trump

An estimate from Social Security Chief Actuary Stephen Goss found that a permanent payroll tax cut could deplete the program's trust funds by mid-2023. Funding for disability benefits could run out as soon as mid-2021.

Rep. John Larson, D-Conn., called the president's actions unwise and the first steps towards defunding Social Security.

"Americans are suffering," Larson said, as millions have lost jobs and struggle to pay rent and feed their families during the coronavirus pandemic.

"This is not the time to terminate payroll taxes and defund Social Security," Larson said. "It's hard to imagine a time that could be worse."

Breaking the link between contributions and benefits and, with it, the self-help, earned-benefit nature of Social Security would end the program as we know it.
Nancy Altman
president of Social Security Works

The Trump administration, however, has maintained that the president intends to preserve the program.

"The president has clearly stated repeatedly that he will always protect Social Security and Medicare," Tim Murtaugh, director of communications for Trump's re-election campaign, has said.

Rep. Tom Reed, R-N.Y., also spoke out at Thursday's hearing against claims that the president wants to weaken the program.

"You are making an accusation against the Republican party and the president of the United States that is false," Reed said.

Rep. John Larson (D-Conn.) leaves the Capitol after the final votes of the week on Thursday, Feb. 28, 2019.
Bill Clark | CQ-Roll Call Group | Getty Images

Reed, who lived on Social Security benefits as a child when his own mother was widowed with 12 children, called the hearing "political theater" and "pure fear mongering."

"To suggest because I wear the Republican brand on my political party, that what my mission in life is to do is to terminate Social Security so that people and seniors will die and not have access to Social Security is patently offensive to me personally," Reed said.

The political divide is not clearly along party lines. Larson pointed out some Republicans, including Sens. Chuck Grassley, R-Iowa; John Thune, R-S.D., and Susan Collins, R-Maine; have spoken out against the payroll tax deferral.

Larson said the president's actions could be blocked by using the Congressional Review Act or simple legislation to make the executive action "null and void."

Earlier this month, Larson and 19 colleagues introduced a bill called the Save Our Social Security Now Act to overturn Trump's executive order deferring the  payroll taxes. At the same time, the group is also working to come up with a Congressional Review Act resolution to help get a vote done quickly. The efforts have been endorsed by AARP, an advocacy group for older Americans.

The payroll taxes lost during the deferral period will not deplete Social Security's funds because they can be replaced by general revenue. Advocates for the programs argue that sets a bad precedent.

"Breaking the link between contributions and benefits and, with it, the self-help, earned-benefit nature of Social Security would end the program as we know it," said Nancy Altman, president of Social Security Works, an advocacy organization, said in testimony prepared for Thursday's hearing.