Last week’s Social Security Trustees report tells us two fundamental things: that the program needs to be expanded and strengthened — and that our leaders should resist the temptation to tamper with Social Security’s finances to address the COVID pandemic.
The Trustees say that Social Security’s long-term outlook remains much the same as it did last year. If Congress takes no preventative action, the trust fund reserves will become exhausted in 2035, after which the program could pay 79 percent of benefits earned by seniors. But the report does not reflect the pandemic’s potential effects on Social Security — through diminished FICA payroll contributions due to rising unemployment or a flood of early claims by older Americans struggling to pay their bills.
Knowing that COVID likely will have some financial impact on Social Security, it’s even more crucial to bolster the program’s finances now. Congress could deal with Social Security’s long-term funding shortfall fairly easily, by passing separate legislation introduced by Rep. John Larson (D-Conn.) and Senator Bernie Sanders (I-Vt.) to eliminate the income cap on payroll taxes. That simple, common-sense measure – in which the wealthy begin paying their fair share into Social Security — would keep the system solvent for decades.
Instead, at a time when the system’s finances are shown to be stable in the short term, Congress is undermining the program’s financing by deferring employer payroll contributions that help to fund Social Security, as a means of economic stimulus.
Now President Trump, Treasury Secretary Mnuchin and prominent conservatives like Arthur Laffer and Steve Forbes are calling for a full payroll tax holiday — meaning that neither workers nor employers would pay into Social Security for the near future. That will be devastating for the program’s long-term health.
Here’s why: even if Congress backfills the missing payroll contributions with general revenue, interfering in any way with Social Security’s funding structure imperils the program itself. Since its enactment in 1935, Social Security has been a worker-funded program (with employers paying a matching share).
That’s why we call Social Security an “earned benefit.” Americans are proud they contribute to their own retirement benefits. That is why we so often hear the cry, “Hands off our Social Security!” when Congress or the President attempt to misuse or “reform” it. Diverting payroll contributions and replacing them with general revenue undermines the earned benefit nature of the program.
Of course, once the “camel’s nose is under the tent” in this way, conservatives can amp-up their claims that Social Security is fueling the debt (even though it always has been self-funded). And it’s not a stretch to imagine that when the payroll tax cuts are due to sunset and payroll contributions restored to their normal levels, so-called ‘fiscal hawks’ will object on the grounds that it’s a “tax increase.”
Meanwhile, payroll tax cuts are an inequitable and ineffective way to stimulate the economy. Nearly 50 percent of a payroll tax cut would go to the top 20 percent of workers; the bottom 20 percent of the income ladder would see only five percent of the benefit, even though lower-income workers are the most likely to spend the extra money they receive – the whole point of economic stimulus.
Payroll tax cuts are also a huge boon to large companies. Suspending employer contributions is supposed to induce companies to retain employees, but there is no stipulation that they actually do so. According to an analysis by the Democratic members of the Congressional Joint Economic Committee, “Amazon—which already paid no federal corporate taxes in 2018 despite $11 billion of profits — could easily save over $1 billion [in] payroll taxes on an annual basis from their complete elimination,” without any guarantee that the company’s employees would benefit. The Joint Economic Committee Democrats conclude that “a large portion of the payroll tax cut would, therefore, accrue to business owners — including the owners of the largest, wealthiest corporations — instead of employees.”
Meanwhile, Social Security already provides more than $1.6 trillion in annual economic stimulus as seniors, people with disabilities, and survivors spend their benefits on essential goods and services in their communities. Congress can boost Social Security’s economic stimulus effect — and provide relief to cash-strapped seniors — by adopting proposals from Sens. Elizabeth Warren (D-Mass.) and Ron Wyden (D-Ore.) to increase seniors’ benefits in response to the pandemic.
Next year’s Trustees report may reveal some adverse impact on Social Security from the Coronavirus, though hopefully, any negative effects will be short-lived. But we do know that in terms of stimulus, few government programs deliver the far-reaching results that Social Security does. Congress should fortify the program immediately.
Seniors who are among the most vulnerable to COVID-19 both physically and financially will benefit from the added income boost. Now is not the time — in fact, it is never the time — to tamper with the earned benefits that 4 in 10 American seniors rely upon for all of their income. We can’t allow “entitlement reformers” to leverage the Trustees report — or the COVID crisis — to undermine a program that has been the bedrock of the working and middle classes for nearly 85 years.
Max Richtman is president and CEO of the National Committee to Preserve Social Security and Medicare, a membership organization that promotes the financial security, health and well being of current and future generations of maturing Americans. He also chairs the board of the National Committee’s Political Action Committee, a PAC that endorses candidates for federal office.