Max J. Skidmore
The election is over. Joe Biden won. But a serious issue related to the funding of Social Security is hanging over the Biden Administration and the next congress: will the funds deferred from the payroll tax by President Trump be restored to the Social Security Trust Fund?
The financing for America’s Social Security system comes from a payroll tax, FICA (the Federal Insurance Contributions Act) levied on wages up to $142,800 (for 2021; the amount changes yearly). Wages above that amount do not count for purposes of the system.
The tax is 6.2% deducted from the employee’s wages. The employer matches that amount, thus providing an additional 6.2%.
Those amounts go into trust funds. Benefit payments come out of those trust funds, as do the very small administrative costs. Those costs are extremely low, less than 1% of the amount collected, making Social Security the most efficient such system in the world.
The rest of the amounts in the trust funds (that is, the amounts left over after paying benefits and paying administrative costs) are invested in government bonds. Those bonds are completely safe, and regularly pay interest back into the trust funds.
Under the law, all benefits must come from the trust funds. So long as FICA taxes keep coming into those funds, there will always be income to pay for some level of benefits.
Under the Obama administration, during the financial crisis that President Obama inherited, FICA taxes were temporarily suspended in order to make more money available to workers. This did not affect the trust funds, however, because the government replaced the amounts that the trust funds would have received from FICA.
President Trump’s Executive Action Regarding Payroll Taxes
Last August, President Trump issued an executive order delaying the collection of FICA taxes for the rest of the year. This order did not reduce the taxes owed; it only delayed their collection.
Employers and employees will have to pay the accumulated taxes after the first of the year, and therefore many employers are continuing to collect FICA taxes, and are holding them to provide them to the government when they come due. This prevents them, and their workers, from having to come up with large payments to catch up on the amounts owed.
The reason for this rather confusing policy has not been made clear. It may reflect a misunderstanding by Mr. Trump regarding how Social Security’s financing operates.
On the other hand, he may have been making a move toward eliminating the payroll tax, and thus eliminating Social Security. Mr. Trump suggested that this may be his preference, but this cannot happen without a change in the law. Such a change would only be possible if Mr. Trump is re-elected, and if Republicans keep control of the Senate, and gain control of the House.
If the law were to be changed, and the payroll tax eliminated, it would be only a few months before the trust funds would be completely exhausted, and Social Security would be eliminated. Mr. Trump has made no secret of his desire to kill the system, and many Republicans – probably most of those in Congress – agree. Since Republicans did not have the courage to oppose Donald Trump, even those who do not agree with Trump would almost assuredly vote to do whatever it was he proposed.
Democrats all desire to retain the system, and even to expand benefits. Thus, the November 4th election was crucial to Social Security’s future.
For the system to continue, it was essential to vote Trump out of office, to retain Democrats in control of the House, and to elect more Democratic senators, so that Democrats will control the Senate as well as the House. Now we have some uncertainty due to the two senate races in Georgia. Those races could be critical for restoration of deferred taxes to the Social Security Trust Fund.
It is impossible to overstate the importance of massive Democratic victories at all levels, if Social Security, Medicare, and many other essential programs are to continue, and if other much-needed programs are to be enacted. We had some important victories, but not a massive blue wave that we were hoping for. Now, saving the Social Security System will be a matter of activism and fighting hard for a system so many people depend on in retirement and in other ways. It will be important to learn your senator’s and congressperson’s phone number and make yourself know to them.