WASHINGTON (AP) — The Trump administration on Friday allowed employers to suspend collection of some Social Security taxes, although business groups don’t like the idea and it may create political headaches for Republicans. Democrats are already saying it would undermine retirement benefits.
The
Treasury Department guidance came late in the day, less than 24 hours
after the conclusion of the Republican National Convention and a speech
by President Donald Trump in which he promised to protect Social
Security and Medicare.
It
allows employers to offer their workers a temporary deferral of the
6.2% payroll tax employees pay into the Social Security Trust Fund for
the rest of this year. The taxes owed would not be forgiven, and instead
would come due in 2021.
It’s
unclear how many employers will take the option, since implementing it
would involve additional effort and expenses on their part.
“The
guidance allows employers to defer withholding and paying the
employee’s portion of the Social Security payroll tax if the employee’s
wages are below a certain amount,” Treasury said in a terse press
release. The earnings cutoff is $104,000 a year.
Trump
had ordered the tax deferral in early August after Congress deadlocked
on the latest coronavirus relief bill. The president argues more money
in workers’ pockets for the rest of this year will translate to a boost
for the economy.
But
major business groups traditionally allied with the White House called
the idea unworkable for employers and unfair to workers. Employers
wanted to avoid the hassle of having to collect the deferred taxes later
on from their workers.
Neil
Bradley, policy chief for the U.S. Chamber of Commerce, said Friday
night the Treasury guidance leaves many practical questions unanswered.
“However,
it makes clear that employees will be required to pay more taxes
beginning in January to offset any benefit they receive now,” Bradley
said. “The only way to achieve a workable proposal is for Congress and
the administration to come together and enact a change in the law.”
Lawmakers have little desire to tinker with Social Security.
An
analysis by the Chamber found that a hypothetical worker making $75,000
a year would get nearly $179 more every two weeks through the rest of
this year. But that same worker would owe about $1,610 next year. A
worker making $35,000 would get about $83 more biweekly the rest of this
year, and owe just over $750 next year.
Separately,
AARP wrote Treasury Secretary Steven Mnuchin to express concerns about
the potential consequences for Social Security finances.
Regardless of the practical impact of Treasury’s action, it appears Social Security will be thrust into the election maelstrom.
Trump
has also teased that if he’s reelected he would press for a permanent
cut in Social Security taxes. Although the president argues it will help
revive an economy battered by the coronavirus, many economists
disagree.
“At
the end of the year, the assumption that I win, I’m going to terminate
the payroll tax, which is another thing that some of the great
economists would like to see done,” Trump told reporters earlier this
month, adding that “tremendous growth” in the U.S. will cover the costs
of Social Security. “We’ll be paying into Social Security through the
general fund.”
White
House aides insist that Trump is only referring to permanently
forgiving the taxes that would be deferred this year, but the president
himself has repeatedly indicated he has much bigger ideas in mind.
As a candidate in 2016, Trump promised not to cut Social Security and
Medicare, and Democrats say he has now abandoned that promise.
“He
is defunding Social Security and breaking his promise — it’s staring us
in the face,” said Rep. John Larson, D-Conn., who chairs a subcommittee
that oversees the program. Democratic presidential nominee Joe Biden
has joined the criticism.
While
the president has the authority to defer collection of the tax in a
national emergency, only Congress can forgive the amounts owed. Trump
directed Mnuchin to work with lawmakers to secure that goal.
Administration officials say any legislation would repay the Social
Security Trust Fund as well.
But congressional Republicans have shown little interest.
Many
economists say the policy is dubious. While it would put more money in
workers’ pockets, people might not spend it if they’re afraid the
government will ask for it back. Also, a payroll tax deferral benefits
those who are working, not the unemployed going without a $600 weekly
benefit from the federal government that has lapsed.
The White House says Trump’s commitment to Social Security is ironclad.
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