Legislation sponsored by Rep. John Larson, D-Conn., would bolster Social Security by increasing the payroll taxes paid by employees and employers from 6.2% to 7.4% by 2043 and by applying the taxes to wages above $400,000. (AP)
The looming debate over Trump's payroll tax cut – and Larson's payroll tax hike – will offer a glimpse of the emerging battle lines between the parties as they start to frame competing agendas for Social Security and for payroll taxes ahead of the November elections. Changes to payroll taxes withheld by employers could pose challenges to the Internal Revenue Service, since such levies account for about 72% of the revenue it collects.
Ways and Means Chairman Richard Neal, D-Mass., pushed back against Trump's call for a payroll tax cut and emphasized he was continuing to work with Speaker Nancy Pelosi, D-Calif., and her team to lay groundwork for a markup of Larson's proposal. Although the measure faces Senate roadblocks, proponents argue a markup and floor vote would define differences between the parties on a key issue and establish a potential starting point for negotiations on Social Security's future with Trump or his successor in 2021.
"We've been holding meetings with the speaker. I'm just waiting for some clarification on that," Neal told Law360, referring to his efforts to lay groundwork for a markup of the proposal by Larson, chairman of the Ways and Means Social Security subcommittee.
"We are trying to figure out how we can build continuing consensus for it," Neal said.
The administration has argued that revenue lost from a payroll tax cut would be replaced by appropriations from Treasury's general fund, similar to the framework for another payroll tax holiday
enacted after the 2010 midterm elections.But Larson and other senior Democrats argued a proposal floated by the White House to suspend the payroll tax of 6.2% paid by employers and workers would go far beyond the 2010 law's reduction of just two percentage points in the payroll tax paid by workers. Without a deal on appropriations to make up for lost payroll tax revenue, they warn the new proposal would add to the Social Security trust fund's projected shortfall after 2035, when there could be a reduction in benefits of up to 25%.
"Why would you want to further cripple the program? What we need to do is strengthen Social Security and expand it," Larson told Law360.
Neal said Democrats viewed Trump's proposal as a measure that would weaken the financial pillars for Social Security.
"That's been the charge in the past," he said. "I think there's some accuracy to it. It's something that has to be taken into consideration."
While vying over the payroll tax, the parties continue to blame each other for refusing to open the door to a bipartisan agreement like the deal cut by President Ronald Reagan and leaders of both parties in 1983
, a deal that called for the taxation of some Social Security benefits and lifted the retirement age from 65 to 67 for those born in 1960 or later.To head off any benefit cuts and finance a 2% increase in average benefits, Larson's plan would raise the payroll taxes paid by workers and employers from 6.2% to 7.4% by 2043 and would apply such levies to both employers and employees for wages of more than $400,000. The plan would leave a temporary doughnut hole between the ongoing cap of $137,700 on income subject to payroll taxes and the new $400,000 threshold for payroll taxes on wealthy taxpayers.
For their part, Republicans have voiced mixed views on Trump's call for a payroll tax cut, with some questioning whether it will have much impact if many Americans stay home. They also have generally opposed the Larson bill and have signaled they would wait for Trump to outline his plans for dealing with Social Security's financial problems during the 2020 campaign rather than offering their own legislative proposal.
Trump vowed in his State of the Union address on Feb. 4 to "always protect your Social Security." While he has called for reducing entitlement costs, he has stopped short of backing specific changes to Social Security, such as an increase in the retirement age, other eligibility requirements and a less generous annual cost-of-living adjustment.
"I'm not a big fan of it," Rep. Tom Reed, R-N.Y., ranking member on Larson's subcommittee, told Law360, referring to Trump's payroll tax cut. He predicted that concerns about economic effects of the coronavirus, also known as COVID-19, would add to headwinds for the rival party's plans to expand Social Security.
"The prioritization should be on public health concerns of the virus," Reed said.
While Larson's measure probably would win committee approval, with support from 22 co-sponsors on Ways and Means, House Democratic leaders are gauging the potential for defections on the House floor by undecided lawmakers. That's because some may prefer alternative plans promoted by two presidential candidates, former Vice President Joseph Biden and Sen. Bernie Sanders, I-Vt.
Biden's plan would create would create a new $400,000 income threshold for payroll taxes, similar to the Larson proposal. Sanders' plan would create a new $250,000 income threshold for payroll taxes and apply an additional 6.2% net investment income tax on capital income of more than $200,000 for an individual and $250,000 for couples.
Both the Biden and Sanders plans for Social Security would leave payroll tax rates alone. But Sanders has proposed a new 7.5% payroll tax on employers to finance his Medicare-for-all plan..
Andrew Biggs, a resident scholar at the American Enterprise Institute, said that the payroll tax rate increase in the Larson bill might be a reason why Pelosi has not cleared the way for action on the bill yet.
"They are reluctant to have a vote on a very large increase in Social Security taxes," Biggs said.
House Rules Committee Chairman Jim McGovern, D-Mass., a close Pelosi ally, rejected the idea that Democrats would avoid a faceoff on the Larson bill.
"No decisions have been made on whether to mark up the bill or being it to the floor," he told Law360.
Despite such concerns, Rep. Dan Kildee, D-Mich., chief deputy whip in the House and a supporter of the Larson bill, said there was still an opening in coming weeks for party leaders to give the green light to a markup and House floor vote on the Larson bill.
"It's a big lift. But it's a big priority," Kildee told Law 360.
--Editing by Robert Rudinger.
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