By Dean Baker
President Trump is proposing a temporary cut in the Social Security payroll tax as part of an economic stimulus package to offset the impact of the coronavirus. While the economy will need a boost to limit the extent of the downturn caused by the virus, cutting the Social Security tax is the wrong way to go.
Under the law, Social Security payments can only come from the program’s dedicated revenue stream, which is primarily the Social Security payroll tax. Under President Obama, a temporary Social Security tax cut was put in place in 2011. The lost revenue was replaced by general revenue, so the Trust Fund was not in any way diminished. When the tax cut expired, the tax rate returned to its prior level.
Unfortunately, Donald Trump and the Republicans in Congress cannot be trusted to protect the Social Security trust fund. They have frequently proposed cuts to the program, and under President Bush, sought to privatize it. They may well use a temporary tax cut as an opportunity to weaken the program’s finances so that they can then push for cuts or privatization.
A much better model for a stimulus would be President Obama’s Make Work Pay tax credit. This was a refundable tax credit that gave workers 6.2 percent of their pay, up to $400 per worker. It was phased out for higher earners, beginning at roughly $100,000. This is a more progressive structure and does not in any way threaten the Social Security trust fund. Given inflation over the last decade, and the needs of the economy, we may want to double the size of the credit.
Of course, the stimulus must go further to include items like tax credits for paid sick days, increased SNAP benefits, and other subsidies for low-income families, in addition to free testing and treatment for the coronavirus. However, Congress should not allow a stimulus to dampen a coronavirus-induced recession to be an excuse to attack Social Security.