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The Trump administration is considering a proposal to remove Social Security’s dedicated funding stream by eliminating the payroll tax that funds it, the Associated Press reports.

That would generate a considerable and highly visible tax cut for workers — 6.2 percent of their wages, putting an extra $3,720 a year into the paychecks of someone who makes $60,000 a year. And it would save the same amount for their employers.

But Social Security advocates worry that it would undermine the program’s finances by making it reliant on general revenues. Nancy Altman, who co-directs the Social Security Works advocacy group, called it a potential stealth attack.

The Social Security payroll tax — assessed on all earnings up to $127,200 — is regressive in nature. It is, for instance, by far the heftiest federal tax burden on those who earn too little annually to owe much income tax. Its elimination would be a boon to most workers — but only if the funding stream were reliably and fully replaced.

That would require counting on Trump’s economic team to shepherd a solution through Congress — and for Congress to treat Social Security unlike other “discretionary” general-fund programs whose budgets rise and fall with political currents.

Furthermore, the rumored mechanism for making up the lost funding — said to be a form of value-added tax (VAT), based on eliminating deductions on labor expenses — would hit workers the hardest.

The VAT proposal would raise $12 trillion over 10 years, which could be used for Social Security among other things. Paul N. Van de Water, a senior fellow at the left-leaning Center for Budget and Policy Priorities, warned that a VAT tax would increase the cost of goods and services — arguably canceling out the value of the reduced payroll tax for most lower- and middle-class workers.

A typical middle-income person, “gets virtually all of his or her income via wages and they spend all of their income on consumption,” he explained. “So whether you tax wages or tax consumption, you’re hitting them in just about the same way. … The increase in the price they’re paying in the goods and services they purchased won’t be as evident but it will be the same effect nonetheless.”

Full Article: https://theintercept.com/2017/04/11/trump-trial-balloon-to-eliminate-social-security-tax-undermines-key-defense-of-the-program/?comments=1#comments

Also: Trump’s Trojan Horse Attack On Social Security. http://www.huffingtonpost.com/entry/trumps-trojan-horse-attack-on-social-security_us_58ed05e9e4b081da6ad00817

Or: Trump's proposal to eliminate the Social Security payroll tax may be his worst idea yet. http://www.latimes.com/business/hiltzik/la-fi-hiltzik-social-security-tax-20170410-story.html

#Social Security #Taxes #VAT #PayrollTaxes #Politics