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First the background:
With Congress’s negotiations on a “second stimulus” bill nowhere, President Trump yesterday signed a set of executive orders, of dubious legality as to effectiveness, regarding student loans, evictions, unemployment benefits, and, yes, Social Security. After asking for a tax cut since the beginning of the crisis (until March 2), and without receiving legislative support, Trump put in place a proposal.
Yes, a proposal – available to any employee whose salary is less than $ 4,000 per two weekly salary, for the period ending December 31, 2020, with no provisions specified in the executive order as to when or how it would be reimbursed . It amounts to a very peculiar kind of short term loan equal to 7.65% of payments.
And The Hill adds:
” If I win, I can expand and finish, ” Trump said. ‘In other words, I’ll extend it to the end of the year and end the tax.’ ”
Now, to the best of my knowledge, no one has asked Trump what his larger intentions are, should he succeed in his goal of eliminating the tax burden, on employees alone or entirely. It is clear enough that if the tax service is terminated (whether it is only half of the employee, or also the share of the employer), the Trust Fund (as Funds, plural, because this does not only affect benefit of Social Security Old, Survivors, and Disability, but also Medicare) would clear much sooner – even without taking into account the effects of the pandemic, the Fund for Social Security Trust would be at 0 by 2024 or 2025. And it speaks for itself that, in the absence of the Trust Fund, is not a legislative source for social security benefits without tax revenue.
It is no surprise that Trump opponents decipher this move, because, Nancy Altman, president of Social Security Works, “declares a full-blown declaration of war against current and future Social Security beneficiaries.” Anecdotally, at least, some Trump supporters / cynics of social security agree that this will end Social Security, but are very happy to see a program that they believe would have treated them unfairly anyway. (Personally, I doubt he thought the consequences were enough to have a plan of this kind at all.)
But is this irrevocably the case?
Regular readers will know that I am a fan of comprehensive Social Security reform, not just tweaks here and there. My reformed preference would move us from our current bendpoint formula to a “basic pension income” similar to the UK reform of a few years ago, combined with some form of universal pension savings (I go back and forth) about what this should look like: whether a fixed savings rate, or annuity at retirement should be required).
Regular readers will also know that, despite the urging of several Democrats that the solution to the Social Security finances is to remove tax cuts, our income ceiling is already above the international norm. By comparison, Canada has a contribution ceiling of $ 44,000 (CAD 57,400). France is at $ 48,000 (EUR 39,732); Germany, $ 94,000 (EUR 78,000); Netherlands, $ 41,000 (EUR 33,994); Sweden $ 59,000 (SEK 504,375), and the United Kingdom, $ 62,000 (GBP 46,384, with a much reduced contribution above this level). (Interested readers can find summaries of social security provisions in Worldwide Social Security programs, on the Social Security website and at the OECD’s Pensions in a Glance.)
But ordinary readers will also remember that the consulting firm Mercer produces an annual ranking of pension systems – that is, Social Security systems compiled with the regulatory structure for private pension benefits such as the general environment. First, the Netherlands was ranked – which, yes, has the lowest contribution level of all Western countries, as well as a flat pension payment. In second and third, two countries participated no payroll tax at all: Denmark and Australia each have flat social security benefits (in the case of Australia, means test) that are financed through general tax revenue instead of established funds.
What does this mean?
It means that the delay in Trump’s payroll tax can be nothing more than an unintentionally worthless proposal that is unlikely to do much harm nor has a major benefit.
But it also offers us the opportunity to ask, “what is the alternative?” Maybe, at least, a debater asks Trump to explain exactly what he has in mind for Social Security, if not funding through a dedicated tax bill? And maybe this is not an opening for finally making fundamental changes to the system?
As always, you are invited to comment at JaneTheActuary.com!
