GOP Finance chairman raises concerns about Trump push to make payroll-tax deferral permanent

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said Tuesday that he would only support making President Trump’s payroll-tax holiday permanent if it was coupled with a larger reform to ensure the long-term solvency of Social Security.

Grassley told The Hill in an interview that he would like to see the Social Security Trust Fund, which is funded by payroll taxes, made whole next year if Trump and Congress transform the deferral of those taxes in 2020 into a permanent tax cut.

Asked if he would support making permanent the payroll-tax holiday that Trump announced over the weekend, Grassley said, “I would not entertain that question unless … it would go in with the reform of Social Security.”

“We’ve got to make sure that we keep our promises to senior citizens,” he said.

Trump on Saturday pledged to make the payroll-tax holiday enacted for 2020 a permanent tax cut.

“If I’m victorious on Nov. 3, I plan to forgive these taxes and make permanent cuts to the payroll tax,” Trump said at a news conference in Bedminster, N.J., Saturday. “I’m going to make them all permanent.”

“In other words, I’ll extend beyond the end of the year and terminate the tax,” he said. “And so, we’ll see what happens.” 

He reiterated his stance during remarks at the White House Monday.

“I signed directives to give a payroll-tax holiday, with the understanding that after the election — on the assumption that it would be victorious for an administration that’s done a great job — we will be ending that tax. We’ll be terminating that tax,” he said. 

It is not clear whether the president is talking about employees’ payroll taxes only or employer-side payroll-tax obligations, which were suspended for the rest of 2020 in the $2.2 trillion CARES Act.

Trump on Saturday expanded the 2020 payroll-tax holiday by instructing the Treasury Department to stop collecting payroll taxes for workers earning less than $104,000 through Dec. 31.

Making permanent a four-month payroll-tax holiday for employees would draw down the Social Security Trust Fund by about $167 billion dollars unless it was replenished from the general revenue fund, according to a quick calculation by Social Security Works President Nancy Altman.

Making permanent the payroll-tax holidays for both employees and employers in 2020 would cost about $540 billion, Altman said in an interview. 

Grassley said if payroll-tax obligations, which Trump has ordered be deferred until Dec. 31, are forgiven next year, then Congress will have to transfer money from the general treasury to the Social Security Trust Fund. 

“If it goes on until Dec. 31 or a little bit into next year, we’re going to have to do like we did in 2009 or 2010, we’re going to have to put general revenue into the trust fund, dollar for dollar,” he said. 

But if Trump wants to “terminate” the payroll tax on employees and employers altogether, Grassley indicated that would have to be part of a broader reform effort to find other means of funding Social Security.

Then-President Obama signed into law at the end of 2010 a bipartisan compromise that extended the expiring Bush-era tax cuts for two years and cut the payroll tax on employees from 6.2 percent to 4.2 percent for a period of one year.

At the end of 2011, Congress passed a temporary payroll-tax cut continuation to prolong the relief for another two months. 

Then in February of 2012, Obama signed into law the Middle Class Tax Relief and Job Creation Act that extended the 2-percentage-point payroll-tax cut for another 10 months through the end of that year. 

In all three instances, Congress also passed language that replenished the Social Security Trust Fund with general revenue funding. 

Grassley said last month that he did not support including a payroll-tax cut in the next round of coronavirus relief legislation because it would create a “public relations problem” for Republicans. 

“Go to the fact that Social Security people think we’re raiding the Social Security fund. And we are raiding it, but we have always put in general fund revenue in it so it is made whole. But that creates — it might create political problems, but it creates a public relations problem,” Grassley told reporters on July 20.

Asked Tuesday if he’s still concerned that a payroll-tax holiday created bad political optics for the GOP, Grassley said, “I have that concern.”

“The president didn’t make it clear but I think, once before, Secretary [Steven] Mnuchin has thought about it, made it clear that you replenish it dollar-for-dollar,” he said, referring to the Treasury secretary.

Grassley said the troubling appearance that the payroll-tax cut is a raid on Social Security wouldn’t be a problem if Trump had announced a plan to restore the trust fund at the same time he ordered a new payroll-tax holiday for employees.

“If it would come out at the same time, I don’t think we’d have that problem. But since the president announced one without the other, I hope he’ll follow up,” he said.

Grassley said he hopes Trump shares Mnuchin’s view that general treasury funds should be used to replenish the trust fund if the payroll-tax holiday becomes a permanent tax cut.

“If the secretary of Treasury says that, I think he would believe that,” the senator said of the president. 

Senate Majority Leader Mitch McConnell (R-Ky.) did not respond to a question Tuesday about whether he supports making the payroll-tax holidays permanent.

Advocacy groups are sounding the alarm about changing funding for Social Security from a dedicated payroll tax to a stream from general treasury funds.   

Altman of Social Security Works warns that could transform the nature of Social Security.

“What if you want to turn it into a program for low-income people where you have means testing and it’s a very low subsistence benefit? Then of course you pay for it with general revenue and you get rid of FICA,” she said of Federal Insurance Contributions Act taxes, which pay for Social Security and Medicare.

William Arnone, chief executive officer of the nonpartisan National Academy of Social Insurance, said switching from payroll taxes to general revenue funds to support Social Security would completely transform the program.

“It transforms the entire funding principal of Social Security from a dedicated payroll-based revenue stream in trust funds that have that funding to a general revenue approach, which means — number one — it’s not dedicated. Number two, it is subject to annual appropriations. It removes the Social Security status as a guarantee that each year is automatic,” he said.

Arnone said such a major reform would create an opening for “those who say now all those general revenues are being used, let’s look at issues like a means test,” he said.

“Social Security will be transformed from what it is, social insurance, to social assistance. So this really goes right at the fundamental nature of a social insurance program like Social Security,” he said.