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Bruce Wilson
More from Personal Finance
Part 1
McConnell’s bill also includes a proposal to suspend employers’ requirement to pay FICA taxes until January, which Altman said is a red flag.
Typically, both employers and employees each pay 6.2% toward Social Security and 1.45% for Medicare, known as FICA taxes.
The proposal would give employers a reprieve until January, at which point they would have to resume those payments. In the meantime, the trust funds that support Social Security and Medicare would be replenished with general revenue, while the businesses would eventually have to repay it.
“It’s hard to believe that they would even restore it, but that’s what the proposal is,” Altman said.
The problem with giving businesses a break on those taxes is that it could hurt Social Security’s funds, which already face a shortfall. Altman said she fears it’s a way to shrink the Social Security program and eventually cut benefits.
“Opponents of Social Security have just been trying to starve the Social Security beast, as they see it,” Altman said. “We should be on very high alert when they talk about cutting FICA.”
Part 2
As noted, mitigation measures to flatten the curve and minimize the spread of COVID-19 are a necessary evil. Unfortunately they're going to do exceptional harm to the Social Security program. That's because the 12.4% payroll tax on earned income is the primary funding mechanism. In 2018, the payroll tax was responsible for $885 billion of the just over $1 trillion collected by Social Security, with the remaining $118 billion coming from a combination of interest income and the taxation of benefits. If economic activity effectively grinds to a halt, Social Security is going to see a significant drop-off in revenue collection and will almost certainly turn in its largest annual net-cash outflow in history.
In the very near-term, this won't have any impact on existing retired workers or those about to begin taking their payouts. But there's a very real possibility that this economic shock is going to lessen the time frame before Social Security's asset reserves -- i.e., its net-cash surpluses built up since inception -- are completely exhausted. Right now, the Social Security Board of Trustees is calling for the program's asset reserves to be gone by 2035, but it could wind up being much sooner as a result of the coronavirus.
Although Social Security can't go bankrupt, a lack of asset reserves would force the program to cut benefits on retired workers by as much as 23%. Missing out on up to a $1,200 stimulus check would be a bummer, but that pales in comparison to a potential lifetime benefit reduction of 23% if Congress doesn't act soon.
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I I I ran across this on another site that I frequent. Familiar names.
