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August 11, 2020 03:14 PM

Trump's payroll tax executive order deals modest blow to safety net

Alex Kacik
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    Modern Healthcare Illustration / Getty Images

    President Donald Trump's executive order that will defer employee payroll taxes until the end of the year will deliver only a modest blow to the already unstable Social Security program, financial experts said.

    Trump said deferring the 6.2% employee portion of the payroll tax would give workers who make less than $104,000 a year a temporary financial boost. The executive order only applies to the Social Security program and not the Medicare Hospital Insurance Trust fund that pays for beneficiaries' hospital stays, experts said.

    Some are speculating that many employers will not implement the payroll deferral because they don't want to assume the liability for collecting the money at the end of the year, by which time the employees could be gone or the business may close, said Katherine Hempstead, senior policy adviser at the Robert Wood Johnson Foundation.

    "This suggests that the revenue impact will be modest, as will the stimulus effect," she wrote in an email to Modern Healthcare.

    Taxes cover 79% of scheduled benefits of the Social Security program, the reserves of which are projected to run out by 2035, according to an April report from the Social Security Administration.

    The Social Security program would miss out on several months of interest income, of which the Old-Age and Survivors Insurance and Disability Insurance trust funds generated $81 billion in 2019, the report found.

    "Some are saying this is part of Trump's secret plan to kill Social Security and Medicare—I don't really buy into that," said Dan Mendelson, founder of Avalere Health. "But what I do see is when you introduce uncertainty into tax policy, you wreak all sorts of havoc."

    Trump indicated that he would prefer to repeal the payroll tax, but he doesn't have the power to do that, said Gretchen Jacobson, vice president of Medicare at the Commonwealth Fund.

    "If the payroll tax is simply deferred, then it would likewise only have a large impact if many employers go out of business," she said. "But it is entirely a different story if payroll taxes are repealed."

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