President Donald Trump pledged on Saturday to scrap the payroll tax, a key mechanism that's used to fund Social Security and Medicare.
"If I'm victorious on November 3rd, I plan to forgive these taxes and make permanent cuts to the payroll tax," Trump said at a press conference. "I'm going to make them all permanent."
He later said: "In other words, I'll extend it beyond the end of the year and terminate the tax. So we'll see what happens."
The federal government imposes a 15.3% levy on wages known as the payroll tax. It's evenly divided between employers and workers, and most of it goes to fund Social Security. It also helps to finance Medicare, the federal health insurance program for people over the age of 65 and for younger Americans with disabilities.
In an April 2020 Gallup poll, 58% of retirees said they relied on Social Security for a "major source" of their income.
Trump's unexpected comments on Saturday came as he signed an array of executive actions aimed at providing relief to Americans during the pandemic. Among them was a payroll tax cut, which he is waiving from September through the end of the year for workers earning below $100,000 a year.
But it doesn't forgive workers' payments outright since the power to eliminate taxes or change the tax code rests with Congress. As workers and employers are still legally on the hook to make those payments next year, experts say it's unlikely that people will see a bump in their wages anytime soon.
Plus, lawmakers from both parties roundly rejected including a payroll tax cut in their stimulus proposals. Many economists say it would not benefit the 31 million unemployed Americans, either.
Congressional action to eliminate the tax entirely is also improbable, and instead set off a fraught debate over the federal programs' fiscal futures.
Economists from the left-leaning Center for American Progress warned on Thursday that Trump's push to enact a payroll tax cut could further erode their shaky finances.
"Trump's scheme would weaken the Social Security and Medicare trust funds by diverting the revenue from the employee portion of Social Security and Medicare taxes, and potentially the employer's share of Medicare taxes, from the programs' trust funds," a memo from the organization said.
The trust funds for both programs are scheduled to be depleted in this decade. The Bipartisan Policy Center projects that if economic damage was similar to the Great Recession a decade ago, the Social Security trust funds could be depleted in 2029. That could prompt a 31% cut in retirement benefits, the organization said.
The Medicare trust fund is in worse shape. Its trustees said the program would run out of money in 2026 - also without accounting for the pandemic.
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