Millions of Americans have been in financial trouble since the COVID-19 pandemic began. Unemployment has skyrocketed, reached dangerous levels, and some 100,000 small businesses have closed their doors permanently.
It is clear that the public is desperate for relief, and is growing impatient with legislators, who may not seem to be coming up with a second COVID-19 relief package. President Trump, meanwhile, has sought to help matters by signing a number of executive orders in early August. But one means of relief in the long run could spell serious problems for one of the most important social programs of our time.
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A Battle for Social Security
President Trump is proposing a tax return for employees that allows employees to defer their Social Security and Medicare taxes from the beginning of September until the end of the year. That alone is not terrible for Social Security. If those taxes are paid by the submission date of 2020, the program will not technically lose on the revenue it would otherwise collect in the latter part of 2020; rather, it will just take a little longer to get that money.
The problem, however, is that President Trump is looking to completely forgive that tax burden when he is re-elected to office. And that’s where Social Security could get into big trouble.
Payroll taxes are not the only form of Social Security revenue, but they are the primary source of the program. If Social Security is exempted from the four-month payroll tax deduction, the program may be able to cut benefits sooner than it would like.
As it stands now, benefit cuts were already on the table before the COVID-19 crisis began. Social security expects to owe more money in planned benefits than it will generate revenue in the coming years as baby boomers leave the workforce. It has trust funds that can tap into it in the long run to keep up with its financial obligations, but once these money is on cash, cuts may not be beneficial.
Before the pandemic, Social Security trustees expected the 2035 program’s trust fund to be without money. But if President Trump’s holiday pay vacation is set up, and ‘four-month’ ‘tax’ is actually just forgotten, then Social Security could revamp the removal of its trust funds much, much sooner – especially if we account for the fact that the program this year already a lot of income has been lost due to widespread unemployment.
Brace for benefits cuts
President Trump can in fact not go away with forgiving tax revenues for paid traffic for the last four months of the year, but that still does not change the fact that the COVID-19 pandemic has already had a major impact on Social Security. In April, the unemployment rate reached a record high of 14.7%, and it has since remained on double-digit territory. That alone could be a reason to gear up for benefit cuts in the next 10 to 15 years.
Of course, seniors who already rely on Social Security for most of their income can not really do much to prevent the devastating hit to their earnings that may follow. The best thing anyone in that position can do is cut back on spending and think of ways to reduce future spending, such as moving to a part of the country where the cost of living is cheaper. However, current workers can compensate for a reduction in benefits by increasing their retirement savings. Sure, that may not be a viable option at the moment, something like unemployment is so high, but once the pandemic ends, it should be more viable. Boosted IRAs and 401 (k) s can certainly help future retirees maintain their lifestyle in the face of diminished benefits, but that does not necessarily make this pill less difficult to swallow.
