Eliminating Payroll Tax Could Bankrupt Social Security by 2023

If President Donald Trump were to deliver on his promise to eliminate the payroll tax, Social Security retirement funds would be depleted as soon as 2023—an entire decade earlier than previously estimated, according to a report from the Social Security Administration.

The chief actuary for the cash-strapped agency warned in a letter to Congress on August 24 that if legislation were passed ending the tax as of January 1, 2021, the trust fund which supports Social Security benefits would be empty by the middle of 2023. Funds for disability payments would run out even sooner, the letter said.

"With no alternative source of revenue to replace the elimination of payroll taxes on earned income paid on January 1, 2021 and thereafter, we estimate that DI (Disability Insurance) Trust Fund asset reserves would become permanently depleted in about the middle of calendar year 2021, with no ability to pay DI benefits thereafter," wrote Stephen Goss, chief actuary of the Social Security Administration, in his letter to lawmakers.

"We estimate that OASI Trust Fund reserves (the Old-Age and Survivors Insurance Trust Fund reserves that fund social security payments) would become permanently depleted by the middle of calendar year 2023," Goss wrote, "with no ability to pay OASI benefits thereafter."

The analysis was done at the request of a group of Democratic senators following Trump's announcement that if re-elected to a second term this November, he would get eliminate the payroll tax that funds the popular program.

"We will be, on the assumption I win, we are going to be terminating the payroll tax after the beginning of the new year," Trump said during a press conference earlier this month.

Trump claimed that the move would save families thousands of dollars. He also asserted that it would have no impact on Social Security because the money would be shifted from the government's general fund, though such a move would require an act of Congress.

It's not the first time the president has put into question the financial status of the program. On August 8, he bypassed Congress and signed an executive order calling for a "payroll tax holiday" for the millions of employees who pay into the system.

Typically, employees and employers each pay half of the total 12.5 percent Social Security tax due for each worker. But under the executive order, employers would stop withholding the 6.25 percent from employees for Social Security, but would still contribute their own portion for each worker. Under the proposal, the employers would be responsible for "collecting" the tax from their employees at the end of the "payroll tax holiday." No details were provided as to how that collection would be done.

Trump's threats to Social Security are a gamble, given the popularity of the program and the reliance on it by seniors, who will be a key voting bloc in the 2020 election. Today, more than 65 million Americans receive benefits through Social Security. That number represents nearly 20 percent of the American public, and is equal to 47 percent of the total number of votes cast in the 2016 election.

social security protest WH 2015
Activists participate in a rally urging the expansion of Social Security benefits in front of the White House July 13, 2015 in Washington, D.C. A new analysis from the Social Security Administration found that if President Donald Trump were to deliver on his promise to cut the payroll tax, the agency would be out of money by 2023. Win McNamee/Getty

Advocates for the program previously told Newsweek that Trump's actions are moving senior voters away from him and toward Democratic nominee Joe Biden. The former vice president has pledged to increase Social Security benefits for low-income families and individuals, which would be paid for by raising taxes on those earning more than $400,000.

The agency was in trouble even before Trump's executive order. Earlier this year, the Social Security Administration estimated that the fund could be insolvent by 2035. Since then, the administration has lost even more tax revenue, as millions of Americans became unemployed due to the coronavirus pandemic.

In response to Goss's report, several high-profile Democrats have criticized the president and promised to safeguard the program.

"Democrats will stand strong for America's seniors and Social Security beneficiaries," House Speaker Nancy Pelosi tweeted on Tuesday morning. Senator Elizabeth Warren tweeted that we "cannot let Trump destroy Social Security."