President Donald Trump wants the next stimulus package to include a payroll tax cut, with his administration arguing the reduction would help boost economic growth. But a cut to the primary source of revenue for the Social Security program would come at a time when the retirement program is already facing strains.
Payroll taxes fund social insurance programs including Social Security and Medicare, with employers and workers splitting the 15.3% levy. Last year, the tax provided more than $900 billion in funding for the Social Security program, according to the most recent financial report from the Social Security Administration.
The idea behind a payroll tax cut is to put more money in the pockets of both businesses and consumers at a time when the coronavirus pandemic has caused widespread economic pain. But it would slash the primary source of funding for Social Security, leading to concerns that future benefits could be reduced to pay for that payroll tax cut, according to the Senior Citizens League, a nonpartisan group focused on issues impacting older Americans. “Tax cuts are wonderful things — they give you a little extra money up front, but when the tax cut affects your long-term retirement income, it can have a very long-reaching impact,” says Mary Johnson, a Social Security and Medicare policy analyst for the Senior Citizens League. That could result in a decreased standard of living for future retirees, she notes, adding, “An extra $1,000 you get to keep today could be worth tens of thousands in retirement down the line.”
Even if a payroll tax cut never materializes, the program could still face funding problems. That’s because payroll taxes are already taking a hit given the current high levels of unemployment, with roughly 21 million people out of work in May, since those workers —and their employers on their behalf — are no longer paying the tax.