Social Security Is Going Strong, So Let’s Not Screw That Up
We’ve said it before and we’ll say it again: Social Security is extremely important to women. Nearly two in three Social Security beneficiaries 65 and older are women, and the program lifted 9 million older women above the poverty line in 2017. During economic downturns, Social Security’s stable, inflation-adjusted lifetime income payments are especially important.
So we welcomed the news from Social Security’s trustees, who recently released their annual report on the state of the program’s finances. Now before you reply “TL;DR,” we’ll give you the short version: the Social Security system is strong and it’s built to weather storms like the one we’re in.
But it’s maddening when there are alarming calls by the current administration to disrupt Social Security’s main source of income—its payroll tax.
To understand why this is such a huge problem, you need a little background on how Social Security works. About 88 percent of Social Security’s income is from the payroll tax on workers and employers. Most workers are subject to this tax. Workers pay 6.2% of their earnings up to $137,700 into the Social Security trust fund and each of their employers also pays 6.2%. When they retire (or become disabled, widowed, or die), they or their family members can receive a Social Security benefit that replaces part of their prior earnings.
Because the payroll tax is the largest source of Social Security’s trust fund income, cutting or eliminating the tax could compromise the finances of this incredibly important program, which has not missed a single payment in the 85 years the system has been around.
More than 24 million workers have filed for unemployment insurance in recent weeks—and that number could still go up as more businesses have to let their workforces go. That means that there are already fewer people paying a payroll tax because they don’t have any earnings that can be taxed. And a payroll tax cut would do nothing to get more money in the hands of folks who are unemployed, because they already aren’t receiving a paycheck.
But let’s consider those that are fortunate enough to still have their job. Cutting the payroll tax by 2 percentage points (from 6.2% to 4.2%) would only save the typical woman making $40,000 a year $800 annually. That works out to $33.33 per pay period. And while that’s something, it’s not going to cover this month’s rent or grocery bills.
While the administration’s earlier calls for payroll tax cuts have not been embraced thus far, it’s important to remind ourselves why it’s such a bad idea before it gets raised again. We cannot shortchange our future selves in responding to this crisis, and instead should use this moment as an opportunity to enact policies that bring economic security within the reach of all of us.