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Trump's payroll tax action creates political, business risks

Laura Davison, Bloomberg News on

Published in Political News

President Donald Trump's move to halt the collection of taxes that fund America's main support programs for the elderly spurred a wave of political opposition and threatens to generate tension between employers and workers.

Trump in a memorandum on Saturday instructed the deferral of payroll tax collections for some workers. The taxes are paid by both employees and their employers, and fund Social Security and Medicare for those already using those programs.

But because congressional approval is needed to enact changes in federal levies, the amounts foregone under the order will still come due next year, unless legislators act.

Initial reaction reinforced the message that both Democrats and Republicans had sent the White House during the talks on a coronavirus relief package that collapsed on Friday: don't do it. Underlying that opposition is concern that hurting the finances of the massive programs that pay retirement and health care benefits for the aged, along with disability income, will be punished by voters.

Changes to Social Security, a program with widespread support that's been around since 1935, were once called the "third rail" of American politics -- an allusion to the danger of electrocution.

Vital program

 

The program that emerged from the Great Depression is the largest single source of income for older Americans, providing the majority of income for half of retirees, and at least 90% of income for 18% of retirees, according to the Center on Budget and Policy Priorities, a progressive think-tank. It's particularly important to women and people of color. Politicians meddle with it at their peril.

Social Security and Medicare already face a dire outlook. Though payroll taxes ostensibly go to "trust funds" that build up assets from which the benefits are paid, the demographic challenge posed by the large, rapidly-retiring baby-boomer generation means there's not enough money for the government's obligations. Further starving the programs through a payroll-tax deferral makes Trump's move a risky gambit.

Democratic presidential candidate Joe Biden said Saturday that Trump was "putting Social Security at grave risk." With no suggestion of how the forgone funding will be made up, the president's move is the "first shot in a new, reckless war" on the program, Biden said.

Rep. Richard Neal of Massachusetts, chairman of the House Ways and Means Committee, said Trump's "decree is a poorly disguised first step in an effort to fully dismantle these vital programs by executive fiat."

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