A draft proposal from the Trump administration would significantly alter federal payroll taxes for U.S. workers. If implemented, the change would require lawmakers to come up with a new source of funding for Social Security.
According to an Associated Press report, President Trump’s team has started to consider eliminating the 6.2 percent payroll tax that finances Social Security. For the average worker, that would mean a significant increase in take home pay—an additional $3,100 per year for a worker earning $50,000, for example.
Eliminating the Social Security payroll tax would require lawmakers to find a new source of funding for the entitlement program. An early proposal from Representative Kevin Brady (R-TX) would raise taxes on imports, potentially amounting to $1 trillion over 10 years. Brady’s plan has been touted as one way Republicans could begin recouping the funds needed for Social Security.
Opponents of the proposal argue that disconnecting Social Security from payroll taxes and instead having it rely on general federal funds leaves it vulnerable to future cuts. Reports in Washington suggest that even President Trump has his reservations, given earlier campaign promises around leaving Social Security and Medicare untouched.
With the Trump administration shifting gears from healthcare to reforming the tax code, significant changes could be just over the horizon. If you use a payroll service provider, ensure that they are aware of the proposal and monitoring any changes that come out of Washington.