Trump grabs ‘third rail’ of politics with payroll tax pause

President Trump’s pledge to “terminate” the payroll tax that funds Social Security defies the conventional wisdom of staying away from what’s known as the “third rail” of politics.

Proposing a major reform to Social Security shortly before an election traditionally has been seen as the political equivalent of touching the highly electrified rail that powers subway cars.

The last president to try, George W. Bush, made a similar move shortly after winning a convincing reelection in 2004, and he was stopped dead in his tracks. Bush’s ill-fated effort to reform Social Security energized dispirited Democrats and sapped political momentum from the start of his second term.

Yet the danger of overhauling the funding stream for a program that in turn provides payments to seniors has not deterred Trump from risking support in key battleground states like Florida.

Trump on Saturday, and again on Monday, said his goal is to get rid of the payroll tax altogether, raising the prospect that Social Security would be funded out of general fund revenues instead of having dedicated funding like it has for decades.

“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,” Trump said Monday at the White House.

The daring promise to scrap a tax that funds Social Security could have dire effects for Trump among older voters, who already prefer former Vice President Joe Biden by a substantial margin.

“Biden was already doing better with seniors than any Democrat since before 2008 and this is game-changing,” said Democratic pollster Celinda Lake. 

“Seniors think overwhelmingly that politicians should just keep their hands off the [Social Security] trust fund,” she added, asserting that Trump “wants to break the trust fund.”

“That’s insane,” she said.

Lake said Social Security has been thought of as the third rail of politics because “people love the program” and “they think it’s their money — they paid in, so don’t touch it.”

Social Security is funded by a 12.4 percent tax that is split evenly — 6.2 percent each — between employers and employees. The $2.2 trillion CARES Act, which became law in late March, suspended payroll taxes for employers through December.

The Biden campaign quickly pounced on Trump’s instruction to the Treasury Department over the weekend to stop collecting payroll taxes for employees through Dec. 31. A new ad airing in Florida, which has a large population of seniors, accuses the president of “directing funding cuts for Social Security.”

“Nearly 4 million Florida seniors rely on Social Security, and once again Donald Trump’s failed leadership is hitting seniors the hardest,” the ad’s narrator says.

Biden’s Social Security plan calls for applying payroll taxes to wage earnings above $400,000. Currently payroll taxes apply only to the first $137,700 of earnings.

Tad Devine, a Democratic strategist who worked on Al Gore’s 2000 presidential campaign, said the issue of Social Security almost clinched Florida for Democrats that year.

Gore attacked Bush’s proposal to let younger workers invest a percentage of their payroll taxes in stocks.

Bush made a gaffe late in the campaign when he blurted out that Democrats were attacking his plan “because they want the federal government controlling Social Security like it’s some kind of federal program,” appearing to forget that it is indeed a federal program.

“This is a very similar situation in that Trump has opened himself up to a fusillade of attack on Social Security and Medicare,” Devine said. 

A Monmouth University poll released Tuesday found that Biden is leading Trump 58 percent to 41 percent nationwide among people 65 and older.

Trump’s move on Social Security is unsettling some congressional Republicans.

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) on Tuesday said he would only think about supporting a permanent payroll tax cut if it’s part of a broader effort to reform Social Security.

“I would not entertain that question unless … it would go in with the reform of Social Security,” Grassley said. “We’ve got to make sure that we keep our promises to senior citizens.”

Grassley told reporters last month that he would not support including a payroll tax cut in the next coronavirus relief package 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 said July 20.

Grassley, when asked Tuesday if Republicans face a public relations problem following Trump’s executive actions over the weekend, said, “I have that concern.”

He noted, however, that Treasury Secretary Steven Mnuchin has indicated that the White House would look for ways to replenish the Social Security trust fund if the payroll tax holiday for 2020 is made permanent or if the payroll tax is eliminated entirely.

“The president didn’t make it clear but I think, once before, Secretary Mnuchin has thought about it, made it clear that you replenish it dollar-for-dollar,” Grassley said.

Grassley noted that Congress replenished the Social Security trust fund from general fund revenues in 2011 and 2012 when then-President Obama signed three payroll tax cuts into law after Congress passed legislation to do so.

After the 2010 midterm elections, Obama signed into law a deal with Republicans 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 one year. 

Congress then extended the payroll tax cut at the end of 2011 for two months. In February 2012, Obama signed a measure that extended the 2 percentage point payroll tax cut for another 10 months.

Congress included language in all three bills to replenish the Social Security trust fund with general revenues.

Other Republicans on the Senate Finance Committee, which has jurisdiction over Social Security, have tried to wave Trump off his payroll tax ambitions so close to Election Day.

“I’m not a fan of that, I’ve been very clear about that,” Senate Republican Whip John Thune (S.D.) told reporters last month.

Thune warned that a payroll tax holiday for employees would have less economic impact than other ideas on the table. 

“If it’s a choice between doing [stimulus] checks and a payroll tax cut, I think it’s pretty clear that the checks have a more direct benefit to the economy,” he said, predicting that workers would get a “slight plus-up” likely sometime in the “fourth quarter of this year.”

Senate Majority Leader Mitch McConnell (R-Ky.) declined to answer when asked Tuesday whether he would support making the payroll tax cut permanent, as Trump has proposed.

Ross K. Baker, a professor of political science at Rutgers University, said Trump has tried to tout his payroll tax cut without mentioning the effect on Social Security.

“I think the fact that the payroll tax supports both Social Security and Medicare is not known to many people. I think that probably most people, if they think about the payroll tax at all, think of it as something goes to the general fund. But it’s a dedicated tax,” Baker said.

“He’s been very careful about not connecting it to Social Security. I’m a little bit surprised that Democrats haven’t jumped on this more aggressively, because you can justly say the repeal or reduction of the payroll tax is a raid on the Social Security trust fund.”