Drain The Trust Funds

     From the Washington Post:

A new report projects that the Social Security Trust Fund might run out of money within six years under a Donald Trump presidency, while Vice President Kamala Harris’s proposed policies would not meaningfully change the current trajectory.

Social Security faces a looming funding crisis in an aging country, with trustees most recently predicting that the retirement and disability program’s trust fund will become insolvent in 2035. Many of Trump’s campaign proposals would accelerate that timeline, potentially by years, said the Committee for a Responsible Federal Budget, a nonpartisan group that opposes large federal deficits.

In a report released Monday, the organization concluded that many of Trump’s proposed second-term agenda items all work in the same direction when it comes to the Social Security Trust Fund. The budget group did not produce a similar report on Harris’s policies because they would have a negligible effect measured only in weeks or months rather than years, said Marc Goldwein, CRFB’s senior policy director. ...

Most directly, Trump has promised that no Social Security recipients should have to pay federal income taxes on their benefits. Under current law, 40 percent of beneficiaries pay taxes on some portion of their Social Security. The tax they pay on their benefits goes directly back to the trust fund, and getting rid of it could cost the program almost $1 trillion over 10 years, the report forecast.

Other Trump policies might have indirect effects. Trump’s pledge to deport millions of undocumented workers could cost the trust fund hundreds of millions of dollars, the CRFB said. Many undocumented immigrants have payroll taxes taken out of their paychecks for the Social Security Trust Fund, but never become eligible to claim benefits, so they are a net positive for the program. ...

 

Every Bad Idea For Social Security That The GOP Has Ever Had, In One Document

    Republicans in the House of Representatives have put forth their plan for what that they hope to extort from the President by threatening to put the U.S. government into default on its debts. Here's what their plan would do to Social Security retirement benefits (begins at page 80):

• Implement a new minimum benefit of 15% of the average wage index;
• "Modernize" the Social Security benefit formula, which is a euphemism for reducing future benefits for those now 54 and younger;
• Increase Full Retirement Age to 70 between now and 2040;
• Eliminate the retirement earnings test for those who are under Full Retirement Age;
• Eliminate auxiliary benefits for high wage earners.
  

    The plan also includes changes in disability benefits (begins at page 74):

• Enact a benefits offset experiment that would reduce disability benefits by $1 for every $2 earned (they must not know that this experiment is underway already);
• Allow FICA reductions for employers with high rates of employee retention, which is supposed to help handicapped people stay employed (which would disadvantage manufacturers);
• Require employment in six of the last ten years, instead of five;
• Time limited disability benefits for some recipients; 
• "Update" the grid regulations;
• Make disability benefits contingent on medical improvement (I don't think they meant to say that but that's what they said);
• Prevent those drawing unemployment benefits from drawing disability benefits;
• Eliminate withholding of attorney fees for representing claimants (at least I think that's what they're saying but they only thing clear about it is that they bear a lot of ill will towards attorneys);
• Close the record "after a reasonable period of time";
• Require Social Security to conduct periodic reviews of ALJ decisions, particularly those of "outlier" judges;
• Prohibit reapplications within 12 months of a denial;
• Increase the waiting period for Medicare from 24 months to 60 months;
• Eliminate the ability to apply for both early retirement and disability benefits at the same time;
• Allow employers and employees a reduced FICA rate if the employer provides long term disability benefits.

This Should Come As No Surprise

     From the Associated Press:

Most U.S. adults are opposed to proposals that would cut into Medicare or Social Security benefits, and a majority support raising taxes on the nation’s highest earners to keep Medicare running as is.

The new findings, revealed in a March poll by The Associated Press-NORC Center for Public Affairs Research, come as both safety net programs are poised to run out of enough cash to pay out full benefits within the next decade.

Few Americans would be OK with some ways politicians have suggested to shore up the programs: 79% say they oppose reducing the size of Social Security benefits and 67% are against raising monthly premiums for Medicare. ...

Instead, a majority — 58% — support the idea of increasing taxes on households making over $400,000 yearly to pay for Medicare, a plan proposed by President Joe Biden last month. ...

Three-quarters of Americans say they oppose raising the eligibility age for Social Security benefits from 67 to 70, and 7 in 10 oppose raising the eligibility age for Medicare benefits from 65 to 67. ...

While most support increasing taxes on households earning more than $400,000 a year to pay for Medicare, the poll shows a political divide on doing so: 75% of Democrats support the tax but Republicans are closely divided, with 42% in favor, 37% opposed and 20% supporting neither. ...

    So why do Republicans in Congress keep talking about raising full retirement age and keep refusing to consider any changes to FICA? That's what their big money donors want; their rank and file members not so much.

If FICA Covered All Wages Over $250,000

 

From the National Committee to Preserve Social Security and Medicare

More COLA Numbers

     Social Security has published its complete Cost Of Living Adjustments. There's more than individual COLA adjustments to be computed. Here's some key numbers for 2023:

• Attorney user fee: $113
• FICA wage base: $160,200
• Quarter of coverage amount: $1,640
• Substantial gainful activity amount (non-blind): $1,470
• Trial work period threshold: $1,050
  

Who Is Naive Enough To Believe This?

      From Roll Call:

If Republicans take one or both chambers of Congress in November, don’t be surprised if shoring up Social Security’s finances becomes an area of bipartisan focus.

Pronouncements like that have been made before only to die on the next election campaign’s vine. But the spirit of compromise that animated discussions around last year’s bipartisan infrastructure package appears to be creeping into nascent talks about finally, really, this-time-we’re-not-joking doing something to stave off Social Security insolvency.

The prospects look brighter now in the Senate, where veterans of previous bipartisan “gangs” have begun talking about the need for fixes. ...

     What are the chances that Democrats agree to benefit cuts? Nearly zero. What are the chances that Republicans agree to tax increases? Nearly zero. Spirit of compromise? Are you kidding? Nothing's going to happen until there's a gun to their heads.

Thanks, Donald Trump!

      From GOBankingRates.com:

Employers and self-employed individuals who chose to defer paying part of their 2020 Social Security tax obligation [because then President Donald Trump, as part of his re-election campaign, gave them the option or because they were federal employees who had it forced upon them by Trump] must make a payment by Jan. 3, 2022. While many received reminder billing notices from the IRS, the agency also noted that those affected are still required to make a tax payment, even if they never received a bill.

 “As part of the COVID relief provided during 2020, employers and self-employed people could choose to put off paying the employer’s share of their eligible Social Security tax liability, normally 6.2% of wages,” according to the IRS reminder. “Half of that deferral is now due on January 3, 2022, and the other half on January 3, 2023.” ...

Who Could Have Predicted?

     From CBS Chicago:

Imagine this – you’re unemployed and you get a letter saying you owe thousands of dollars in back Social Security taxes.

That is the reality for some local U.S. Census managers. CBS 2’s Suzanne Le Mignot spoke to one of them, who said the news was a shock. ...

In August of last year, President Donald Trump signed a memorandum allowing employers to defer certain workers’ Social Security taxes during the COVID-19 pandemic.  ...

“I never received any documentation – any communication – from my former employer indicating that my payroll, Social Security taxes would be deferred while I was working,” the Census manager said. ...

The Bill Comes Due

      From FEDweek:

As was widely expected, an issue has arisen regarding repayment of Social Security taxes that were not withheld from many federal employees late last year under a Trump administration policy.

Under that policy, the standard 6.2 percent Social Security withholding was not taken from the pay of federal employees who earned less than $4,000 in a biweekly pay period starting last September through year’s end. Employees were not allowed to opt out—many said they wished to—although the Postal Service was free to decline to participate, and did, because of its semi-independent status.

From the outset, concerns arose about the requirement that the amount not withheld over those four months must be repaid (the original deadline of April 30 was extended to year-end 2021). However, because that repayment generally is made through regular payroll withholding, there have been questions about employees who separate before the amount is repaid or who work on an irregular schedule.

According to the NFFE union, those concerns proved justified when the Agriculture Department’s National Finance Center, which administers payroll there and for some other agencies, “issued notices to over 10,000 individuals demanding payment by May 2 or they would incur penalties with interest and be referred to collections.” ...

And It Didn't Get Trump Re-Elected!

      From Stars and Stripes:

Members of the armed forces and federal employees have 12 months instead of four to pay back Social Security taxes that haven't been collected since September, officials said this week.

The so-called payroll tax deferral, which was put in place by the Trump administration for the last four months of 2020 to help workers during the coronavirus pandemic, meant that many working Americans — including service members and federal employees — had an extra 6.2% of money in each paycheck.

But starting with the first pay period of 2021, the extra money has to be paid back. And, on top of that, Social Security taxes will be collected again.

Initially, the money was supposed to be repaid by April 30 in equal amounts, which would have meant a dip in paychecks of 12.4%.

But this week, the Defense Finance and Accounting Service announced the period to collect the deferred tax has been extended until Dec. 31, 2021, meaning the money will be deducted in even amounts over 26 pay periods instead of eight. ...

     This is just the Department of Defense. Are other federal agencies doing the same? 

     By the way, like the overwhelming majority of private employers, my law firm never stopped collecting FICA.

I'd Say Trump Walked Right Into This One

      From Jennifer Rubin writing for the Washington Post:

You might not have noticed it during his speech in Pittsburgh on Monday, but Democratic presidential nominee Joe Biden slipped a big issue into the mix for 2020. While focusing primarily on President Trump’s liability for the ongoing pandemic, the rotten economy and the surge in racial violence, Biden also hit Trump’s plan to eliminate or suspend the payroll tax after the election. Biden declared, “The Social Security Administration’s chief actuary just released a report saying if a plan like the one Trump is proposing goes into effect, the Social Security Trust Fund would be ‘permanently depleted by the middle of calendar year 2023, with no ability to pay benefits thereafter.’” Oh, that seems like a big deal.

Biden was referring to Trump’s suggestion to eliminate the payroll tax, the funding mechanism that supports Social Security and Medicare. The Associated Press explained: “These taxes raised $1.24 trillion last year, according to the Congressional Budget Office. Over a 10-year period, Trump’s idea would blow a $16.1 trillion hole in a U.S. budget that is already laden with rising debt loads.”

The chief actuary of the Social Security Administration, Stephen Goss, sent a letter last week to Senate Democrats, explaining, “If this hypothetical legislation were enacted, with no alternative source of revenue to replace the elimination of payroll taxes on earned income paid on January 1, 2021 and thereafter, we estimate that [the Disability Insurance] Trust Fund asset reserves would become permanently depleted in about the middle of calendar year 2021, with no ability to pay DI benefits thereafter.” Goss added, “We estimate that [the Old Age and Survivors Insurance] Trust Fund reserves would become permanently depleted by the middle of calendar year 2023, with no ability to pay OASI benefits thereafter.”     

      In a sign that this issue may have hit a nerve, the Chairman of the Senate Finance Committee and the senior Republican on the House Ways and Means Committee have written Stephen Goss, Social Security's Chief Actuary, to complain about his response to the hypothetical question. However, Goss had little option but to respond to the hypothetical question. That's what his office does. He can't refuse to answer questions because he thinks a question because it seems political. All the questions are political. 

     Republicans have long thought that Goss is against them. I think the problem is that they keep putting forward foolish proposals because they have never bothered to try to understand how Social Security works or even given much thought to the politics of Social Security.  It's not Goss' fault the GOP keeps coming up with untenable ideas.

What Do You Think?

     From Syracuse.com:

Joe Huppman didn’t hesitate to answer the urgent plea last month for retired doctors and nurses to help New York fight the coronavirus pandemic in hospitals stretched thin by a surge in patients.  

Huppman, 64, of Camillus, volunteered to return to the Syracuse VA Medical Center where he worked as a nurse for 17 years until retiring in 2017. He’s now on standby to help if needed. 

If he’s called to duty, Huppman and other retired medical personnel like him will be asked to make a financial sacrifice: The Social Security Administration will cut their benefits if they work too many hours, a penalty for exceeding annual earnings limits.

Huppman and others who started collecting Social Security before their full retirement age of 65 will have $1 deducted from their benefit payments for every $2 they earn above the earnings limit of $18,240 this year. 

Huppman shared his concerns with U.S. Rep. John Katko, who wants to change the law as the coronavirus takes its toll on the U.S. and stretches hospitals and first responders to historic limits. ...

Cut FICA To Fight The Economic Damage Done By Covid-19?

     From Michael Hiltzik writing for the L.A. Times:

It’s natural for decision-makers grappling with a new crisis to dust off ideas tried in the last one, whether they were good ideas or bad. Here’s a bad idea, unearthed by President Trump from a decade ago: Cutting the payroll tax to goose the economy.

A payroll tax cut was part of the arsenal used by President Obama to fight the Great Recession in 2011. It was a bad idea then, and a bad idea now.

In remarks at a press conference Monday, Trump mentioned a payroll tax cut as a possible component of a stimulus plan to counteract a coronavirus-related economic slump. As of this writing, the administration hasn’t released any details.

Regardless of how it’s designed, however, a payroll tax cut would be poorly targeted, delivering the most help to households least in need. It would have only a diluted impact over time. And it would undermine Social Security, the program most dependent on the payroll tax. ...

Hourly workers sent home without pay or laid off because of the economic slowdown would get nothing. That would include the workers most vulnerable to virus quarantines or workplace closures, namely service workers such as waiters and waitresses, hotel staff and office cleaners.

Even for those still receiving paychecks, the payroll tax cut would be spread over the year via weekly or biweekly paychecks, providing a mere 10 bucks or so a week for a low-income household. ...

In 2011, the payroll tax cut was seen by Obama and his aides as an unpalatable choice forced on them by intransigent Republicans in Congress. ...

The payroll tax cut “was the best we could do at the time given the political constraints,” Furman notes. “But it was far from optimal then and would be even further from optimal now.” ...

What’s most unnerving about a payroll tax cut is its potential to undermine Social Security. ...

Using this income stream as a tool to pump stimulus into the economy threatens to erode Social Security’s position as a unique government program with its own revenue stream, a tax dedicated to its upkeep alone. Melding its own revenue with that of the federal government at large facilitates no one’s goals except those who want to see the edifice pulled down.

     Cutting payroll taxes isn't in the plans of House Democrats. If the President wants to get something passed, he's going to have to give House Democrats something they can say "yes" to.

Social Security 2100 Act Moves Forward

     John Larson, the Chair of the House Social Security Subcommittee, has been pushing the Social Security 2100 Act. Now comes word that he's planning a hearing on the bill next month and a markup in September. This doesn't guarantee that the bill will proceed to markup before the full Ways and Means Committee much less that it will get a vote on the House floor but it's a sign that the bill is moving forward. Of course, the bill won't get a vote in the Senate in this Congress. This is about setting the stage for what happens after the 2020 election if Democrats control both Houses of Congress plus the White House. Of course, that's a big "if" but this bill would be hugely important if that "if" comes to pass.

      Here are the major provisions of the Social Security 2100 Act:

• Benefit bump for current and new beneficiaries – Provides an increase for all beneficiaries that is the equivalent of 2% of the average benefit. The United States faces a retirement crisis and a modest boost in Social Security benefits strengthens the one leg of the retirement system that that is universal and the most reliable. [Sec. 101]

• Protection against inflation – Improves the annual cost of living adjustment (COLA) formula to better reflect the costs incurred by seniors through adopting a CPI-E formula.  This provision will help seniors who spend a greater portion of their income on health care and other necessities.  Improved inflation protection will especially help older retirees and widows who are more likely to rely on Social Security benefits as they age.  [Sec. 102]

• Protect low income workers – No one who paid into the system over a lifetime should retire into poverty.  The new minimum benefit will be set at 25% above the poverty line and would be tied to wage levels to ensure that the minimum benefit does not fall behind.  [Sec. 103]

• Cut taxes for beneficiaries – Over 12 million Social Security recipients would see a tax cut[ii].  Presently, your Social Security benefits are taxed if you have non-Social Security income exceeding $25,000 for an individual or $32,000 for couples.  This would raise that threshold to $50,000 and $100,000 respectively. [Sec. 104]

• Holding SSI, Medicaid, and CHIP Beneficiaries Harmless – Ensures that any increase in benefits from the bill do not result in a reduction in SSI benefits or loss of eligibility for Medicaid or CHIP. [Sec. 105]
• Have millionaires and billionaires pay the same rate as everyone else – Presently, payroll taxes are not collected on wages over $132,900. This legislation would apply the payroll tax to wages above $400,000.  This provision would only affect the top 0.4% of wage earners. [Sec. 201, 202]

• 50 cents per week to keep the system solvent – Gradually phase in an increase in the contribution rate beginning in 2020 so that by 2043, workers and employers would pay 7.4% instead of 6.2% today. For the average worker this would mean paying an additional 50 cents per week every year to keep the system solvent. [Sec. 203]

• Social Security Trust Fund Established – Social Security provides all-in-one retirement, survivor, and disability benefits funded through the dedicated FICA contribution paid by workers. There are technically two trust funds, Old-Age and Survivors (OASI) and Disability Insurance (DI), and that are usually referred to as the Social Security Trust Fund. This provision combines the OASI & DI trust funds into one Social Security Trust Fund, to ensure that all benefits will be paid.  [Sec. 204]

Avoiding FICA Taxes Comes At A Cost

     The Center for Retirement Research at Boston College has a new study out on the problem of FICA tax avoidance by independent contractors and others who make a living in the “gig economy” or by selling online. They estimate it’s costing the Social Security trust funds $6.4 billion per year in lost revenues. They also note that this sort of thing leaves those involved with lower benefit amounts or no benefits once they become disabled or retire. They don’t mention the secondary cost to taxpayers of additional Supplemental Security Income (SSI) benefits paid to those who failed to pay FICA taxes when they were working.

The Grand Compromise Fantasy Never Goes Away

     Some excerpts from a piece by Paula Span in the Health Section of the New York Times:

We’ve long heard warnings that the Social Security program that 52 million Americans rely on for their retirement benefits could one day run out of money.

Analysts say that’s not going to happen — if only because older people are such a powerful voting force — but this year the system has hit a worrisome milestone: the Social Security Administration reported that the retirement benefits paid out each month exceeded the tax revenues and interest that fund the program. ...

Making adjustments to keep Social Security solvent, crucial as that is, represents only one of the issues confronting Congress. It could also correct outdated aspects of a program that serves nearly 90 percent of Americans over 65. ...

The fixes will likely include changes designed to bring more money in and pay less out. Imposing a higher payroll tax or raising the level of earnings subject to Social Security taxes (as of January 1, they will apply to the first $132,900, already an increase) would bolster revenues.

Money-saving measures could include reducing benefits for high earners and trimming the number of years that workers collect benefits by raising eligibility ages. ...

Working longer and claiming benefits later — trends already well underway — pay off in ways that extend beyond Social Security itself. “It’s good for people, it’s good for government tax revenues and it could fuel economic growth,” Dr. Johnson [of the Urban Institute] said.

But as his report points out, living longer doesn’t always mean people can work longer. Higher-income professionals may opt to stay on the job, he said, but “health problems are increasingly concentrated among less educated workers and they’re falling further and further behind” economically. Moreover, even those who could work often discover that “employers don’t seem eager to hire 62 year olds.”

By their early sixties, his analysis of national survey data found, a quarter of high school graduates and 37 percent of those without a high school diploma report work limitations related to their health. Many say their jobs require substantial physical effort. ...

While some think tanks and congressional staffs are exploring ways to strengthen Social Security financially, others are looking into outmoded provisions that penalize beneficiaries, primarily women.

Senator Bob Casey, Democrat of Pennsylvania, has introduced legislation intended to help widows, widowers and divorced spouses qualify for higher payments and receive benefits earlier if they’re disabled. ...

Speaking of women and Social Security, another effort would award work credit for those who temporarily leave the labor force because of caregiving responsibilities. ...

     Let me make it clear. I oppose raising full retirement age or any other cut in Social Security. Raising full retirement age would have a devastating effect on working men and women who often can't make it to the current full retirement age which never should have been raised from 65. I have zero trust in any scheme dreamed up to alleviate this problem. Not only can this country easily afford the Social Security benefits currently available but this country can easily afford enhancements to those benefits. The cap on the payroll tax can be raised. Other tax revenues, such as an enhanced estate tax, can be devoted to Social Security. Solving the financing problem is easy if you really want to. If Democrats control Congress and the White House after the 2020 election it's a fantasy to think that they're going to push for some great compromise that cuts Social Security benefits. The Obama Administration's efforts to compromise with Republicans on health care are a vivid memory. GOP Senators stalled and drug out negotiations in bad faith. They never had any intention of voting for health care reform. No Democratic president will make that mistake again any time soon. Social Security reform will have to be accomplished solely with Democratic votes and on Democratic terms.

What Effects Will Tax Bill Have On Social Security Trust Funds?

     The FICA tax that supports the Social Security trust funds is not insignificant. It's 15.3% if you're self-employed. Many self-employed people have gotten around this by incorporating their businesses as what have been called "S corporations." This is now being referred to as a "pass-through corporation", a more descriptive term for people unfamiliar with the Internal Revenue Code, which, of course, is most people. Pass-through corporations pass along all their net income to their owner or owners. There's no corporate taxes paid. Payments from a pass-through corporation are not considered wages and are not subject to the FICA tax.

     The Republican tax bill that is likely to pass this week adds a huge incentive for switching to a pass-through corporation. Subject to some limits, 20% of income from a pass-through corporation isn't taxed. This huge tax advantage is on top of the exclusion from the FICA tax. Almost everybody with a business will now switch to a pass-through corporation. Many people who aren't now thought of as self-employed will try to find some way of receiving payment for their work through a pass-through corporation.

     What effect will this have on the Social Security trust funds? I haven't seen any estimate but it's bound to have a significant negative effect on the trust funds. Of course, in the long run, it's going to leave many people without the quarters of coverage they need to receive Social Security benefits but it will take longer for that effect to become obvious.

     By the way, I can't seem to find out whether professional practices such as law firms are excluded from pass-through corporation treatment. The last I heard was that this was an issue still to be resolved. I can't see a reason why a trucker or construction worker is eligible for this but not a lawyer or architect. Really, I don't see why anyone should be eligible for this. It's a massive, intentionally created loophole at the expense of ordinary working men and women.
     By the way, even if professional practices are excluded, that doesn't mean that lawyers and other professionals can't benefit. Let's say a law firm forms a corporation that's not a law firm but a "staffing agency." The lawyers wouldn't be employees of the staffing agency but the firm's non-attorney staff would be. The law firm makes a generous enough payment to the "staffing agency" corporation so that it makes a substantial profit which it then pays out to the lawyer owners. Since the staffing agency corporation isn't a professional practice, 20% of the distributions aren't taxed. I can figure this one out and I'm not a tax lawyer or accountant. We'll see what the experts can come up with.
     Update: I can now say that law firms are excluded. (page 39). However,  I have seen nothing that would prevent a staffing corporation from qualifying and that could achieve much the same result.

Looks Like Someone Goofed

     From a Social Security press release:

In October of each year, the Social Security Administration announces adjustments that take effect the following January that are based on the increase in average wages. Based on the wage data Social Security had at the time of the October 13, 2017, announcement, the maximum amount of earnings subject to the Social Security tax (taxable maximum) was to increase to $128,700 in 2018, from $127,200 in 2017. The new amount for 2018, based on updated wage data reported to Social Security, is $128,400. ...

     This is odd. Why wouldn't Social Security have had the correct data as of October 13, 2017? It looks like someone goofed but the goof may have happened outside the Social Security Administration. In fact, it sounds like they're saying that someone else, perhaps Treasury, gave them incorrect information.
    I hope this doesn't cause problems. Programs used to compute payroll have to have the correct FICA wage cap. There will be problems if those programs aren't corrected.

Social Security Will Be Affected By Republican Tax Bill

     The tax bill that Republicans hope to pass would potentially have effects upon Social Security. It would trigger budget rules that would demand significant cuts in Social Security and Medicare. Congress would still have to pass those cuts but they would have held a gun to their heads to force themselves to do so. However, the bill would end a tax loophole that has allowed many professionals to avoid the FICA tax that supports Social Security by using pass-through corporations.

FICA Receipts Hurt By IRS Budget Problems

     From the Fiscal Times:

A new report by the Treasury Inspector General for Tax Administration released this week highlights the problem and suggests that the IRS may still be doing too little to go after employers suspected of hiding wages and failing to report billions of dollars in federal payroll taxes, including for Social Security and Medicare. 

The inspector general analyzed 137,272 cases from tax year 2013 in which there was a glaring discrepancy between employee wage and withholding information reported to both the IRS and the Social Security Administration and found that the IRS declined to investigate most of the possible fraud. According to the inspector general, the IRS intervened in only 23,184 of those cases, or just 17 percent of the total. ...

   And it's going to get worse since the IRS budget keeps getting cut, allowing abusive schemes to flourish.