New stimulus and Social Security

[njhowie]

Not a political thread, so let's not bring politics in to this discussion

Last night a new Covid stimulus/extension of benefits package was signed by executive order. Of most interest to those on this forum is the deferral of employee payroll taxes for Social Security and Medicare. This deferral is through end of the year. POTUS has indicated that if he is re-elected, he would move to make the deferral permanent, meaning (as I understand it) not paying back the deferred amounts and no further employee payroll taxes going forward.

The biggest immediate question arising is "Where does that leave Social Security"? We've been told that without overhaul, Social Security benefits would need to be reduced to about 70% of current levels sometime in 2030s. This move with respect to employee payroll taxes would surely pull that date forward.

Thoughts/opinions?

 

[mpeirce]

Of most interest to those on this forum is the deferral of employee payroll taxes for Social Security and Medicare. This deferral is through end of the year.

More specifically, deferral only applies to folks making roughly less than $104K. There will still be SS/M taxes flowing from folks who make more than this.

Also, all employer payments are not deferred.

POTUS has indicated that if he is re-elected, he would move to make the deferral permanent, meaning (as I understand it) not paying back the deferred amounts and no further employee payroll taxes going forward.

Sec. 4. Tax Forgiveness. The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.
​

Basically signaling a run at "reforming" social security taxes. Definitely a herculean task, but one worth trying at least.

 

[geeky_grrl]

More specifically, deferral only applies to folks making roughly less than $104K. There will still be SS/M taxes flowing from folks who make more than this.

I wonder how many people are in the group that is excluded for the SS part. Social security isn't taxes on income past $137,700 this year and if you were earning over the cap you probably have already paid the max social security for the year anyhow. I guess it keeps Medicare funding from all of the higher income people.

 

[timo2]

This executive order, if implemented, could solidify the haircut in 2033. I had used a 23% haircut in my spreadsheets, but I read today it could be 31% with this order.

 

[Beststash]

I think it is a dumb and bad idea. What gain will come from tax deferral? Taxpayers and employers will will still be on the hook for that payment, only Congress can change that.

I guess on the positive side it might force a meaningful conversation on our social safety net which is SS and also once again on our healthcare system but other than that it just sounds like beer-joint talk to me.

 

[travelover]

Not a political thread, so let's not bring politics in to this discussion.........

 

[MuirWannabe]

Well, I’m not thrilled about the extra $400/week in UE. DS has not been motivated to look for employment since being furloughed in mid March. Now, it looks like that lack of motivation will continue for the rest of the year.

 

[RetireBy90]

Well, I’m not thrilled about the extra $400/week in UE. DS has not been motivated to look for employment since being furloughed in mid March. Now, it looks like that lack of motivation will continue for the rest of the year.

Don’t UI benefits only run for a short time, like 4 months or so ? Or Were they extended longer in one of the packages ?

 

[RobbieB]

I'm ready, send me another twelve hundred. I'll send it back next month with $1200 of my own.

 

[brewer12345]

Congress has the power of the purse, so this will get challenged in court and overturned.

 

[RetireBy90]

Congress has the power of the purse, so this will get challenged in court and overturned.

Do you think they will ? I was thinking it wouldn’t play well in elections if Democrats take away the $400 from unemployed? I surely don’t know how he plans to effect it nor do I know how to play politics but seems to me the Democrats are in a corner with this.
Not taking a political position just watching from sidelines.

 

[gayl]

Grandstanding and totally political

 

[brewer12345]

Do you think they will ? I was thinking it wouldn’t play well in elections if Democrats take away the $400 from unemployed? I surely don’t know how he plans to effect it nor do I know how to play politics but seems to me the Democrats are in a corner with this.
Not taking a political position just watching from sidelines.

I'd guess it will get challenged. It need not actually be Congress that does the challenging. If they have to, I imagine they will quickly come to the table and hammer out a compromise, which is what this bit of nonsense was no doubt intended to accomplish.

 

[Chuckanut]

As far as reducing the payroll tax, it is not the employed who are suffering the most. It is the unemployed that need the most help. Maybe not $600 a week more, but certainly something given that they have made jobless by government fiat.

 

[mpeirce]

It is the unemployed that need the most help. Maybe not $600 a week more, but certainly something given that they have made jobless by government fiat.

That's a different EO (it's now $400 rather than $600):

https://www.whitehouse.gov/presiden...eclarations-related-coronavirus-disease-2019/

 

[rodi]

Since it is a deferral of the SS deductions - a lot of working folks will be caught short when they are expected to pony it up. A similar move happened in the 92 after the president announced in the SOTU that workers would take home more of their paycheck... He was changing withholding, but not taxes due. I had many very upset coworkers at tax time. (I'd changed my withholding to compensate once I realized what was happening.)

I've advised my son (the only employed person in our house) that he needs to set aside the amount that would have been deducted for SS, so he won't get caught short. The executive order doesn't change the amount owed, just the amount collected.

 

[Independent]

I'd guess it will get challenged. It need not actually be Congress that does the challenging. If they have to, I imagine they will quickly come to the table and hammer out a compromise, which is what this bit of nonsense was no doubt intended to accomplish.

I won't comment on what it was intended to accomplish, that would be political.

But, the prez does have the authority to defer taxes. We've already seen that this year with moving the deadline for FIT filing. He doesn't have the authority to forgive them. So payroll taxes not paid in four months of this year will need to be paid at some time in the future.

Forgiving the four months, or a permanent reduction in payroll taxes, would take an act of congress.

A conservative approach for workers would be to hold onto the tax savings, just in case nothing happens with congress.

 

[cathy63]

Well, I’m not thrilled about the extra $400/week in UE. DS has not been motivated to look for employment since being furloughed in mid March. Now, it looks like that lack of motivation will continue for the rest of the year.

From what I read earlier today, it's $300 from the Feds and $100 from the state. The states don't have the funds to kick in their portion, and because it's not just an extension of regular UE benefits, they will have to setup brand new infrastructure to deliver this money, which will take several months and cost even more money that they don't have. So your DS may very well find that the extra $400/week is not really going to land in his pocket.

 

[Independent]

The biggest immediate question arising is "Where does that leave Social Security"? We've been told that without overhaul, Social Security benefits would need to be reduced to about 70% of current levels sometime in 2030s. This move with respect to employee payroll taxes would surely pull that date forward.

Thoughts/opinions?

They've done temporary cuts in SS taxes before (the 2009 stimulus package). In that case, the general fund paid the SS trust fund the lost revenue. Of course, the general fund got the money by borrowing from the public, but that doesn't show up on this intergovernmental transaction stuff.

So, congress could agree with Trump to not try to recover the four months of taxes, but have the general fund make up the lost revenue again. That leaves the SS trust fund exactly where it would have been if it had just collected the taxes.

Making the cut permanent is a whole different ball game. That means cutting benefits or dropping the whole idea that SS is a self-funding program.

I'll make one political comment. I think that has as much chance as the proverbial snowball.

 

[Out-to-Lunch]

That's a different EO (it's now $400 rather than $600):

https://www.whitehouse.gov/presiden...eclarations-related-coronavirus-disease-2019/

It wasn't an EO. It was a memorandum, as your link reveals!

 

[njhowie]

POTUS has indicated that if he is re-elected, he would move to make the deferral permanent, meaning (as I understand it) not paying back the deferred amounts and no further employee payroll taxes going forward.

"White House advisors on Sunday walked back President Trump's statement that he would make 'permanent cuts' to the payroll tax if reelected, insisting that the president would preserve the primary funding source for Social Security, an entitlement program with overwhelming bipartisan support."

https://www.forbes.com/sites/andrew...ayroll-tax-cut-amid-social-security-concerns/

 

[Dtail]

If many folks have trouble paying an emergency bill of $400, how would we expect them to save these monies to eventually pay the deferral?
If it ends up only being a deferral, then what good does it do to have extra monies now, only to pay it later?

 

[Golden sunsets]

I think it remains to be seen whether or not companies will actually stop withholding from their employees checks.

 

[RetireBy90]

I think it remains to be seen whether or not companies will actually stop withholding from their employees checks.

I read in the Journal this weekend that very thing, that companies would still withhold but just not send to gov till they have to. Interesting thought

 

[Toocold]

The company is responsible for the employee portion of the payroll tax, so they have the choice of clawing back from future payments (like a pseudo garnishment) or keep the initial payments aside until its either forgiven or paid. I would imagine given these two choices, they'd do #2.

All these (haphazard?) actions is the reason why our tax system is so fraught and complex, keeping intuit and tax professionals busy.