If Joe Biden’s presidential campaigners and the DNC (Democratic National Committee) want to pick off President Trump’s “over-50” age base—33.1 million voters in 2016, of whom 12.9 million were women—an immediate issue is at hand. It’s his May 3 vow to slash the sole source of both Social Security/Medicare funding: the “payroll tax.”
Now, most of his seniors voters probably don’t know what a “payroll tax” is, much less deductions for “FICA” or “MEDFICA” on paycheck stubs (Federal Insurance Contributions Act/Medicare Federal Insurance Contributions Act). But they certainly know what Social Security/Medicare payments are—and they are not social program “entitlements” drawn from the government’s general tax revenues.
They are “earned benefits” from paycheck deductions for a lifetime in the workplace. Because those deductions make them self-supporting, they are kept in the U.S. Treasury’s separate “lockbox,” the Social Security Trust Fund, until payout time for those over 62. At death, their surviving spouses—and ex-spouses—continue to receive those monthly earned-benefit checks.
In other words, the “payroll tax” is solely for Social Security and Medicare. By law, employers andemployees must pay those FICA/MEDFICA deductions which fill that lockbox. The current employee deduction is 7.65% (6.2% for Social Security, 1.45% for Medicare). The employer must match it. Thus, if an employee earns $15 an hour for a 40-hour week ($600), that 7.65% deduction also adds up to $46 per week. So does the employer’s deduction.
If earnings are over this year’s $137,700 cap , however, the current percentages are applied only up to that cap. To change this unfairness to those below it—and add millions to the lockbox—Massachusetts’ Sen. Elizabeth Warren is vigorously advocating raising it to $250,00 (7.65% x $250,000= $19,125).
For those making more than $250,000 a year, she wants those extra earnings to be taxed 7.4%. So for high-earners, the payroll tax would involve two deductions each for employees and employers: 7.65% up to her $250,000 cap, plus 7.4% on work income beyond that ($500,000 – $137,000 = $363,000 x 7.4% = $26,862 x 2 = $53,724).
To determine the monthly retirement check, the Social Security Administration uses a formula to add up lifetime earnings and applies the dollar’s changing values and the general wage levels. The formula is explained at https://www.ssa.gov/OACT/COLA/Benefits.html .
Above all else, retaining Social Security/Medicare is the No. 1 worry of all senior citizens this year—and every year. At the end of 2019, the lockbox contained $2.897 trillion from all those paycheck deductions. The surplus after Social Security payments are paid is then invested in non-public special interest-bearing government bonds and short-term certificates of indebtedness. Profits stay in the lockbox as a reserve if payouts are greater than the incoming payroll tax deductions.
So here is Trump, demanding that unless his “payroll tax cut” provision is inserted into the House’s most recent stimulus bill the HEROES Act : a.k.a., the Health and Economic Recovery Omnibus Emergency Solutions Act), he will veto it. (Trump to Fox News: “We’re not doing anything without a payroll tax cut.”).
As an obvious political bribe to his employee base, Trump indicated that this payroll tax cut would be limited to “workers.” Those examples of $46 and $26,862 wouldn’t be deducted from the employees’ paychecks. What he didn’t admit was that employers would also save that $46 (or $26,862) in matching an employee’s deduction.
Nor was he likely to reveal to his base that the employer’s share is a tax write-off as a company’sbusiness-cost deduction . So the payroll tax deduction costs a company nothing except for the hours accounting department personnel spend calculating FICA/MEDFICA deductions and sending the money to Treasury’s lockbox. And that time is also a business-cost deduction.
If that “lockbox” were pried open and raided by presidents and/or Congress to balance the books, it would set precedent for them to eventually steal all the cash. The two programs would be dead and those over 62 would be back to surviving as the elderly did up to August 14, 1935 when Social Security was signed into law by president Franklin D. Roosevelt (FDR).
Such “thieves” don’t care what life was like for senior citizens before 1935. Or what it will be like if they clean out the lockbox and kill the two programs in the near future.
Three-generations usually were crammed into a household out of financial necessity. The elderly were often confined to attics, back bedrooms, and/or shacks close to an outhouse. The adult children paid for their food and clothing as well as medical and prescription expenses. They transported them to clinics and hospitals. The burden of 24/7 care almost always fell on daughters or daughters-in-law. They had to wash their hair and bodies. Toilet them. Cook their meals. And be forced to listen to endlessly repeated stories about the past. Oldsters might as well have been in prison, totally dependent upon grumbling jailors for existence.
Passage of the Social Security law changed all that. The prison doors were flung open and millions over 65 began living independently (if frugally) until their health failed. But after July 30, 1965, president Lyndon Johnson’s Medicare law took care of most of that.
Moreover, those monthly Social Security checks instantly began boosting the nation’s economy by a “guaranteed multiplier effect.” Most seniors still spend their checks immediately on food, housing, utilities, and other vital expenses. In turn, such spending still enriches grocers and their suppliers, hairdressers and barbers, landlords and the rest of goods and services industries, including nursing homes and assisted-living communities. The Medicare program automatically covers most medical and medication expenses, enriching the healthcare and pharmaceutical industries.
Unfortunately, Social Security’s gross payout has been unchanged for the last 50 years except for periodic and small cost-of-living increases. Today’s average gross is $1,503 , but Medicare’s portion is around 10%. So if retirees depend on those monthly checks for 90% of their monthly income, they are usually at poverty levels and perhaps hinting that adult children take them in.
Unless payroll tax deductions are increased, Warren pointed out that for retirees on the receiving end today, their situation is rapidly becoming grim:
“…Social Security has become the main source of retirement income for most seniors. About half of married seniors and 70% of unmarried seniors rely on Social Security for at least half of their income. More than 20% of married seniors and 45% of unmarried seniors rely solely on Social Security for 90% or more of their income. And the numbers are even more stark for seniors of color: as of 2014, 26% of Asian and Pacific Islander beneficiaries, 33% of Black beneficiaries, and 40% of Latinx beneficiaries relied on Social Security benefits as their only source of retirement income .”
Presumably, Trump’s senior voters—and their age peers around the country—don’t know that he and his financial advisors have already begun picking away at the cash flow to that lockbox. It was done in late March by his successful extortionate demand that the first stimulus bill, the $2 trillion CARES Act , include cutting the employer’s portion of payroll taxes until January 1. That means a significant six-month’s loss for Social Security/Medicare. A total suspension of the payroll tax for both employees and employers from March to the rest of this year would cut 26% of the fund’s annual revenue, according to the CBO (Congressional Budget Office. Even if Trump were to succeed in forcing Congress to cut the tax by 1% , it would short the fund by $50-75 billion.
Because Social Security and Medicare are self-sustaining, I and millions of others have always been mystified by why presidents and Congressional Republicans have tried to kill those two programs ever since they became law. The only explanation seems to be heavy pressure from employers to save them thousands on payroll. Or that employees might re-elect Trump out of appreciation for letting them keep their deductions, especially if they received a follow-up snail-mail letter (costing taxpayers thousands in printing/postage) from Trump suggesting some show of gratitude might be in order.
Thus far, Biden’s campaign organization and DNC leaders apparently have yet to see what a potent media factor can stem from Trump’s efforts to cut the payroll tax. It could get those millions of Trump’s seniors either to defect or refuse to vote in November’s election.
Creative staffers with Biden and DNC ought to be able to rapidly produce media material—especially billboards—to drive home the message to those 50 and older that Trump and the Republicans are out to kill Social Security and Medicare by steadily cutting the payroll tax and maybe “borrowing” from the lockbox. That Trump’s seniors better begin planning life in their adult children’s home. Or a rat-and-roach infested studio apartment, eating cat food and wearing their wardrobe, as annuity and stock-market agents still use as a sales pitch to that age group.
Creatives might start with a message along the lines of “Trump’s Payroll Tax Cuts/Will Kill Social Security” or “Trump Wants You to Live in Your Kids’ Basement” or “Trump’s Planning to Dump Grandma on You.” Just get busy carrying a terrifying message to both seniors, their adult children, and the rest of us.