If the payroll tax deferral ends up being irreversible next year– as President Donald Trump desires to do if reelected– the trust fund that pays Social Security benefits might go out in 3 years without other funds to cover the deficiency, according to a new analysis.
The fund that offers disability advantages would diminish even quicker– by the second half of next year, according to the chief actuary of the Social Security Administration.
Currently, the Social Security funds are estimated to run out in 2034, while the impairment fund is expected to remain solvent up until 2065, according to the 2020 OASDI Trustees Report.
“If this theoretical legislation were enacted, without an alternative source of earnings to replace the removal of payroll taxes on earned earnings paid on January 1, 2021, and afterward, we estimate that Disability Insurance Trust Fund asset reserves would end up being permanently depleted in about the middle of the calendar year 2021, with no capability to pay DI advantages thereafter,” Chief Actuary Stephen Goss composed in the letter.
“We approximate that Social Security’s Aging and Survivors Insurance Trust Fund reserves would end up being permanently diminished by the middle of the calendar year 2023, without any capability to pay OASI benefits afterward,” Gross wrote, reacting to a request from four Democratic senators requesting the analysis.
The analysis comes after the president released an executive order earlier this month allowing some workers to briefly defer their payroll taxes from the beginning of September until the end of the year, so they had larger incomes during the coronavirus pandemic. Unless Congress passes legislation to forgive these deferments, employees would owe those payroll taxes next year at tax time.
Trump indicated after signing the order that he would like to make the deferral irreversible.
“If I am victorious on November 3rd, I prepare to forgive these taxes and make long-term cuts to the payroll tax,” he stated at the time. “I’m going to make them all long-term.”
White House financial advisor Larry Kudlow softened the stance some when talked to on Fox News Tuesday.
“I comprehended that to simply imply that we will permanently postpone the payback of that tax cut. That’s all that meant,” Kudlow said. “He wasn’t discussing a generalized Social Security tax cut. He desires to protect Social Security.”
If payroll taxes are removed beginning next year, the only way these funds might generate income is from interest on existing reserves and income from taxing month-to-month Social Security benefits, which is only a fraction of what’s needed.
“This highlights the dependence on payroll taxes for the Social Security Fund to operate,” said Daniel Milan, managing partner of Foundation Financial Services, “as interest earned is nowhere near to enough to support the benefits paid out.”
However Gross noted that funds from other sources might replace the funds lost from a payroll tax cut, comparable to how the General Fund of the Treasury replaced the money lost to short-term payroll tax rate reductions that occurred in 2010, 2011, and 2012.
If a similar transfer of funds strikes balance out the payroll tax cut, “then OASI and DI Trust Fund income, advantages paid, and the predicted depletion date of the trust fund reserves would be basically unaffected by the legislation,” Gross composed.