Could Removing The FICA Tax Cap Come Up For A Vote In The Next Congress?

      PolicyViz tried to find out how candidates in the 20 most hotly contested Senate races stood on proposals to solve Social Security’s funding difficulties by eliminating the cap on the FICA tax that supports Social Security. The results are enlightening. Thirteen Democrats and four independents support removing the cap while two Democrats are generally in support of raising taxes on the wealthy for this purpose but don’t endorse a specific plan. Three Republicans support eliminating the FICA cap. Only one candidate, an Republican, opposes eliminating the cap.  Sixteen Republicans and two Democrats have said nothing on the issue.

     I don’t know when this might come up in the Senate. Certainly not in the next two years if Republicans control the chamber but if Democrats are in charge, who knows? It looks like Republicans would prefer not to vote on it but if forced they may find it difficult to vote against it. Would Democrats try to bring it to a vote in the next Congress if they get a chance? They certainly wouldn’t mind forcing a tough vote on Republicans. Would Trump veto it if it comes to his desk?

Drum Roll Please

      Social Security’s Cost Of Living Adjustment (COLA) effective next year is 3.6%. The cap on wages subject to the FICA tax will be $192,300, up from $184,500.

Some Clergy Want A New Deal

      It’s poorly advertised but clergy can opt out of Social Security. Here’s how it works:

… To opt out of Social Security, ordained ministers must sign Form 4361 “Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners.” The form does not say, “If you are a minister and prefer not to pay these taxes, sign here.” If you read the form carefully, it says that you are conscientiously opposed or opposed because of your religious principles to “the acceptance…of any public insurance that makes payments in the event of death, disability, old age, or retirement; or that makes payments toward the cost of, or provides services for, medicare” in exchange for services you perform as a minister. In other words, signing Form 4361 means that, as a minister, you oppose receiving Social Security or Medicare benefits for your ministerial work 

   Some of those who exercised this option want to get out of the deal they made. As World reports:

… Members of the clergy would have a chance to join Social Security under a bill passed by the Senate this week. The bill, which is headed to President Trump’s desk for signing, creates a two-year window for clergy members to opt in to Social Security and Medicare benefits. Currently, clergy members can opt out of those programs to avoid associated taxes on ministerial earnings. Their decision to re-enroll is irrevocable. If signed into law, the window for re-enrollment would begin in 2029.

The Southern Baptist Convention’s Ethics and Religious Liberty Commission, or ERLC, on Thursday said its members were thrilled that the Senate passed the Clergy Act this week.  …

     You may notice I have little sympathy for the clergy members wanting to remove the irrevocability. I imagine that some, like monks under a vow of poverty, are sincere (but they’re probably not trying to revoke their choice.) The rest, I strongly doubt that many are or were sincere. You knew the deal going in and now you start realizing that opting out of Social Security may not be have been such a great idea so you want to renegotiate the deal. Besides

     Doesn’t this come under the “Render unto Caesar what is Caesar’s” provision that is part of the faith, at least for Christians? I guess that’s why most clergy don’t exercise this option.

     By the way, have you run into the “Love Offering” dodge, as in “I never received wages for being a minister, I received “Love Offerings” and those are gifts so they’re not taxable”? Yeah, that’s just as sincere.

Maybe A Sign

     Senators Bernie Moreno and Elizabeth Warren have penned an op ed in the New York Times recommending that the wage cap on the FICA tax that feeds into the Social Security trust funds be removed. This would prevent the trust funds from running out of money for many years into the future.

     It’s no surprise that Senator Warren would express this opinion. What’s remarkable is that Senator Moreno would feel the same. He’s a Republican from Ohio. I wouldn’t say the dam is breaking but there’s a tiny crack in it.

     The Washington Post has already run an editorial about the Moreno-Warren op ed. They’re aghast. It’s what I would expect from a newspaper owned by Jeff Bezos, one of the wealthiest people on Earth.

Congressional Hearing On Social Security Financing

       The Senate Budget Committee held a hearing yesterday on Social Security: A Discussion on the Facts and the Path Forward. It doesn’t look as if there is anything interesting coming out of this.

     It’s not this Committee or the witnesses at the hearing but I’m always surprised at the number of policymakers and commentators who think that Social Security’s long term, perhaps now medium term, funding problems are some riddle that can be solved by some brilliant person with no one feeling pain. The reality is that you can cut benefits significantly or you can raise taxes significantly or some combination of the two. Even then Treasury will probably need to lend money to the Social Security trust funds for at least a few years. At this point Republicans want benefit cuts but want to find a way to make Democrats politically responsible for the cuts while Democrats want higher taxes but are worried about the backlash. Few, if any, are interested in compromise. I predict no benefit cuts nor tax increases; just Treasury funding for well into the future.

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.