Home / Business / Coronavirus has already dealt a blow to social security finances. Trump’s income tax vacation could make it worse

Coronavirus has already dealt a blow to social security finances. Trump’s income tax vacation could make it worse

The finances of the entitlement programs have long been in trouble. And the number of coronavirus-related layoffs has only exacerbated the problem by lowering the amount of wage tax revenue that goes into their trust funds.

Big fan of wage tax cuts, Trump, on Saturday, signed an ordinance deferring workers’ wage taxes – 6.2% for Social Security and 1.45% for Medicare – for workers less than 100,000 by the end of 2020 Earn USD per year.

If he is re-elected, Trump plans to forgive taxes and permanently cut wage taxes.

“I’ll make them all permanent,” he said.

Otherwise, workers would likely have to pay year-end taxes.

Trump tried to include the controversial measure that does nothing to help the unemployed ̵
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in the latest coronavirus relief package currently being released on Capitol Hill. Republican senators refused, so is the president He takes matters into his own hands and says it has broad support.

“It is very important that I also consider a temporary suspension of income tax,” he said at a press conference on Wednesday. “Something that is supported by many, many sides, especially by our top economists.”

It is unclear how the president would cut wage taxes permanently. Only Congress has the authority to actually change the levies, and when it did so under former President Barack Obama, it reimbursed the Social Security Trust Fund from general revenues.

“A vacation with payroll tax in addition to a pandemic will have a significant negative impact,” Richard Prisinzano, director of policy analysis at Penn Wharton Budget Model, said Thursday. “It just keeps piling up.”

Social Security and Medicare are in trouble

The financial crisis that the entitlement programs are facing is not a distant problem that grandchildren of retirees would face.

If this economic downturn is as bad as the great recession a decade ago, social security trust funds could run out of money in 2029, according to the Bipartisan Policy Center. After that, the beneficiaries could Pension payments will be cut by 31%.

The program’s trustees earlier this year predicted that the fiduciary funds would be used up in 2035, without taking into account the coronavirus pandemic.

It would be the first time since the 1980s crisis that the expected bankruptcy date was within a decade, leading to several changes, including raising the retirement age, said Shai Akabas, director of the center’s economic policy.

“An already urgent situation has become even more pressing,” said Akabas, noting the sharp drop in wage tax receipts. “We assume that this trend will continue for many years as the job market has to recover.”

Layoffs damage the authorization programs

Medicare’s social security and financial health have been severely affected by the sharp decline in employment. In July, almost 13 million fewer people worked than in February. These people and their former employers no longer contribute the 12.4% combined tax for Social Security and the 2.9% total Medicare levy. Whoever earns more than $ 200,000 or $ 250,000 when married is paid an additional 0.9% Medicare tax.

Last year, between August and December, according to the Center for American Progress, a leftist think tank, around $ 500 billion in wages taxes went to social security and Medicare trust funds.

Another 1.2 million Americans applied for unemployment benefits for the first time last week

The huge job loss means the trust funds for the two entitlement programs are likely to be depleted years earlier than forecast, say several think tanks.

The forecast depends heavily on when the economy is expected to recover. If the economy recovers quickly with a V-shaped recovery, it would be the Penn Wharton Budget Model 2034 exhaustion date. However, a slower U-shaped recovery would accelerate it by two years to 2032.

A full recovery in 2021 would only shorten the life of the trust funds by about a year, according to a recent presentation by actuaries to the Social Security Agency. However, if the business closures continue into next year or economic activity declines permanently, the negative effect could be “much greater”.

The situation is even worse for the Medicare trust fund, whose trustees would run out of money by 2026 earlier this year without considering the pandemic.

If employment and wage tax revenues follow the same pattern as the Great Recession and its aftermath, the Medicare Trust Fund could reach $ 175 billion between 2020 and 2023, according to experts from the American Enterprise Institute think tank. This would accelerate the exhaustion date by three years.

According to David Shulkin, former veterinary secretary and health policy fellow at the University of Pennsylvania, the use of Congressional Budget Office employment projections gives the same estimate.

The unemployment rate was 3.5% in February, just before the coronavirus revitalized the economy. The CBO estimated earlier this year that the annual unemployment rate would be 11.5% in 2020 and 9.3% in 2021. (The unemployment rate in July was 10.2%.)

“What we can’t afford is another crisis – a health finance crisis – during a pandemic,” Shulkin said. “If anything, we should take action to support Medicare’s solvency and not offer solutions that make this problem much more critical.”

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