Social Security’s safe with us, Mnuchin says

Treasury Secretary and top economic adviser also pitch capital gains tax cuts as necessary for recovery; will require legislation

Larry Kudlow, White House economic adviser, wants to return to Bush-era capital gains tax rates. But he'll need help from Congress. (Tom Williams/CQ Roll Call file photo)
Larry Kudlow, White House economic adviser, wants to return to Bush-era capital gains tax rates. But he'll need help from Congress. (Tom Williams/CQ Roll Call file photo)
Posted August 12, 2020 at 3:23pm, Updated at 9:50pm

Treasury Secretary Steven Mnuchin said Wednesday that the Trump administration will “create a level of certainty” to encourage businesses to participate in President Donald Trump’s payroll tax holiday, and that after November’s election a victorious Trump would push legislation “to fully top up” Social Security’s finances.

Trump on Saturday ordered Mnuchin, who oversees the IRS, to stop collecting the 6.2 percent workers’ share of the payroll tax that funds Social Security -- limited to those earning less than about $104,000 annually -- between Sept. 1 and the end of the year. Treasury has yet to issue guidance on how this will be accomplished, leaving businesses uncertain about their potential liabilities in withholding and repaying the deferred taxes.

Trump’s directive expresses a vague hope that the deferred taxes, which the Committee for a Responsible Federal Budget estimates will amount to $100 billion, will somehow not have to be repaid. And it leaves unanswered how soon taxpayers would have to pay back what would amount to a loan if Congress doesn’t forgive the deferred taxes.

“We can’t force people to participate, but I think many of small businesses will do this and pass on the benefits,” Mnuchin told Fox Business.

[Trump signs COVID-19 economic relief actions]

The prospect of wiping out that tax liability rather than forcing what could be an unpleasant tax surprise on lower-income workers has given Democrats an opening to paint Trump and the GOP as willing to undermine Social Security.

The program’s roughly 65 million beneficiaries, mostly those aged 65 and older but also younger retirees, spouses and children of retirees, survivors and those on disability insurance, receive payments worth about $90 billion per month, according to the Social Security Administration.

The trust fund holding the program’s assets contained about $2.9 trillion at the beginning of this year, but that’s projected to start dwindling next year as benefit payments outpace income from the payroll taxes paid by both workers and employers, who kick in another 6.2 percent of wages, up to $137,700 this year. Income taxes on benefits as well as interest earned on trust fund assets provide a small added cushion.

Social Security actuaries said in April the fund would be able to pay full benefits only through 2035, though that’s since moved up due to the pandemic-induced recession sapping payroll tax receipts and sparking more and earlier retirements. The Bipartisan Policy Center says the exhaustion date might now be as soon as 2029.

'Not going away'

A one-time loss of $100 billion in Social Security taxes, about one-tenth of the program’s annual income, probably won’t hasten the program’s demise that significantly. But Trump himself on Saturday opened the door to permanently undoing the workers’ share of payroll taxes.

“If I’m victorious on November 3rd, I plan to forgive these taxes and make permanent cuts to the payroll tax,” Trump said. “Now, Joe Biden and the Democrats may not want that. ... So they’ll have the option of raising everybody’s taxes and taking this away.”

Presidential advisers like National Economic Council Director Larry Kudlow and Mnuchin immediately started walking back the president’s comments. “The tax is not going away,” Kudlow said Sunday on CNN’s “State of the Union” show. “The president in no way wants to harm those trust funds,” Mnuchin told Fox News’ Chris Wallace on Sunday.

But Trump at a Wednesday night press conference reiterated his intention to "terminate" the payroll tax if he wins reelection. This time he made sure to note that "the money is going to come from the general fund" to pay for Social Security benefits.

"We're not going to touch Social Security. I've said from Day One we're going to protect Social Security," Trump said. When asked how the general fund could afford the $1 trillion-plus annual cost of Social Security benefits given an already massive federal debt, Trump replied that "tremendous growth" in the economy would generate the revenue.

"We'll get it approved" by Congress, Trump added.

That would be a hard, if not impossible, sell. Even before Trump's Monday comments, Democrats pounced.

Presumptive Democratic presidential nominee Joe Biden said Trump was putting Social Security “at grave risk” and that his plan would “defund” the retirement and disability programs. By Tuesday, Biden had a television ad up flipping between scenes of Trump golfing and worried, mask-wearing seniors as an announcer said the president wants to permanently cut “hundreds of billions of dollars a year” from Social Security.

“One of his biggest broken promises was his assurance that he would defend Social Security and Medicare. We know now that that was another lie,” Democratic National Committee Chairman Thomas Perez said on a press call Monday. Speaker Nancy Pelosi and Senate Minority Leader Charles E. Schumer said in a joint statement Saturday that the president’s order would “endanger seniors’ Social Security and Medicare.”

Medicare is partially funded by a separate payroll tax; Trump’s tax deferral wouldn’t apply to those taxes.

[Self-employed won't get to defer taxes under Trump's payroll break]

Mnuchin on Wednesday made clear that Trump will “go back to Congress when he wins the election and ask Congress to have this money forgiven and have the Social Security Trust Fund fully topped up so that in no way does this impact Social Security.”

Previous payroll tax cuts and deferrals have all had provisions ensuring the trust fund is replenished with general fund revenues.

That includes the 2 percentage point Social Security tax cut for workers signed by then-President Barack Obama that was in effect throughout 2011 and 2012, cutting the tax to 4.2 percent, which the Joint Committee on Taxation estimated would drain a total of $226 billion in revenue.

Trump’s apparent misstatements may make for a “ready-made ad,” but Democrats will still vote to waive the tax and replenish the trust fund no matter who wins the presidency in November, said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center.

“If Trump is reelected and they’re in a lame duck session and they put out this bill that says they’re going to fill in this hole with Treasury money … Democrats would scream about it but they can’t vote against it,” Gleckman said.

Bill Dauster, a longtime Senate Democratic aide whom Trump has nominated to be a Social Security trustee, noted that Congress has always enacted provisions replenishing the trust fund.

Gleckman also predicted that unless the economy “got good all of a sudden,” that Congress will also forgive the payroll tax deferral for the 6.2 percent employers’ share that was part of the roughly $2 trillion relief law signed in March. Half of those deferred taxes must be repaid by the end of 2021 with the other half due the next year. The Joint Committee on Taxation estimates that deferral at $352 billion.

Capital gains

Trump had told reporters Monday night that his administration would be pushing some form of capital gains relief in the coming weeks, but he wasn’t specific on whether it would be in the form of another executive action like the temporary Social Security tax deferral.

In his Fox Business interview, Mnuchin said Trump’s proposed capital gains tax cut “would require legislation to do what we want on that front.”

Democrats are unlikely to back a capital gains tax cut this year, which would disproportionately benefit wealthier households, and Senate Finance Chairman Charles E. Grassley, R-Iowa, also said this week capital gains cuts aren’t on the table at the moment.

Some Republicans, including Kudlow, have long pushed for indexing capital gains to inflation, therefore reducing taxes on gains built up over years, and have argued that could be done without legislation. Kudlow has also called for a capital gains holiday by exempting new asset purchases, like real estate or stocks, from the tax for some defined period.

Kudlow and Mnuchin in separate comments Wednesday each touted a potential return to the maximum 15 percent rate on long-term gains enacted under President George W. Bush in 2003, which lapsed after 2012. The top rate is now 20 percent for single filers earning more than $441,450 in taxable income and joint filers making more than $496,600, plus a 3.8 percent investment income tax that kicks in at $200,000 and $250,000, respectively.

“We’d like to take it back to 15 percent, where it was for quite a long time because it helps jobs, investment, productivity and wages,” Kudlow told reporters at the White House.

According to IRS data for the 2017 tax year, the most recent available, households with at least $500,000 in adjusted gross income, before credits and deductions, accounted for over 70 percent of net long-term capital gains, or gains on assets held at least a year.

Paul M. Krawzak and Niels Lesniewski contributed to this report.