President Donald Trump says that Tax reform will be the next major issue on the table. But, his tax reform agenda is in deep trouble.
One proposal that his team has floated as a way to cut taxes on the middle class is the idea of eliminating the payroll tax, which funds Social Security and part of Medicare, or at least cutting it drastically. According to Michael Hiltzik of the Los Angeles Times, this is not only not a good idea, but arguably Trump’s worst yet:
This is an absolutely terrible idea, partially because it smells like a back-door way of cutting Social Security benefits. It needs to be nipped in the bud.
“This proposal is a Trojan horse,” the veteran Social Security advocate Nancy J. Altman told me. “It appears to be a gift in the form of middle-class tax relief, but would, if enacted, lead to the destruction of working Americans’ fundamental economic security.”
The LA Times goes on to say that to fully understand why, you need to first examine the history of Social Security via payroll tax and how it actually works, which is clearly something the Trump administration knows very little about, but dates back to 1935.
Franklin Roosevelt once said:
“We put those payroll contributions there so as to give the contributors a legal, moral and political right to collect their pensions. … With those taxes in there, no damn politician can ever scrap my social security program.”
The real rationale for the payroll tax was more nuanced. FDR’s Committee on Economic Security, which drafted the program in 1934, had engaged in a spirited debate over whether to fund Social Security via general government revenues or from worker contributions.
There were several reasons to choose the latter. One was to make clear that Social Security wouldn’t be a welfare program, but a retirement insurance benefit provided by right. Inevitably, the committee reported, a “gratuitous” pension — one funded by the general budget, “must be conditioned upon a ‘means’ test,” which meant it would be delivered only to the poorest Americans and fulfill only the slighted needs.
“The gratuitous pension, in fairness to the legitimate demands of other needy groups, must hold all grantees down to a minimum standard,” the committee advised Congress. A contributory system that amounted to an annuity, “can be ample for a comfortable existence, bearing some relation to customary wage standards.” That’s essentially the Social Security retirement system we have today.
Eliminating the payroll tax would make it easier for Congress to cut Social Security benefits under the guise of saving the government money, even though SS is in surplus right now and their talking points on this don’t pass basic fact checks. It’s really another way to make the rich richer at the expense of the working class.