Social Security is a popular and important entitlement program, and both President Donald Trump and Joe Biden, the Democratic presidential nominee, have pledged to protect it.
But while each candidate claims Social Security will be safe in his hands, Trump and Biden differ in many ways over their plans for the program. And one of the biggest discrepancies is in their respective attitudes toward the payroll tax.
A key point of disagreement
Social Security's source of funding is a major point of conflict between the current president and his would-be successor.
Since Social Security's founding, it's had the same funding source: A dedicated 12.4% payroll tax assessed on income up to an annual ceiling (called the wage base limit). Half this tax, or 6.2%, is paid directly by employees, generally with money withheld from their paychecks. Employers pay the other half. Those who are self-employed must cover the entire amount.
Money collected from payroll taxes goes into Social Security's trust fund, where it is invested in special-issue Treasury bonds. All funds paid into Social Security are accounted for in the program's own budget, which is separate from the broader federal budget, and the money can only be used to pay promised benefits.
President Trump, however, wants to change this funding source. He has already signed an executive order to defer the collection of payroll taxes between Sept. 1 and Dec. 31, 2020. And while this means workers must pay them later if their employers choose not to collect them, he's pledged that the unpaid taxes will be forgiven if he's reelected (although he'd have to get Congress on board to make that happen).
The president doesn't just want to cut payroll taxes for a few months, though. He's repeatedly indicated he prefers to eliminate the payroll tax altogether, instead paying for Social Security from the general fund. Since Social Security's funding is currently entirely separate from other federal spending, this would be a fundamental change that could make it more susceptible to political whims.
Biden, on the other hand, has not only made clear he wouldn't cut payroll taxes if elected, he'd actually increase them to help solve Social Security's impending financial crisis, since the trust fund is projected to run short in 2035.
Biden's plan would raise payroll taxes only for some Americans since he'd do it by subjecting more income to these taxes. Currently, the wage base limit for 2020 is $137,700, so payroll taxes are collected only on income up to that threshold. Biden would also collect payroll taxes on income above $400,000. This means only those earning at least $400,000 would pay more, so some of the country's highest-earning households would see their taxes increased to support Social Security.
His plan also reflects a substantial change in Social Security, unless these high earners also receive larger benefits. Biden's plan as it currently stands would mean that the added payroll taxes on income above $400,000 would go to fund other individuals' Social Security benefits. In the past, benefits have always been directly correlated to the amount of payroll taxes you pay. But while this is a big change, Biden would preserve the program's core funding mechanism and secure more funding through the same channels.
Of course, it's not clear if either Trump or Biden would be able to implement his plans for the payroll tax if victorious in November. Any change would require congressional action, and getting majority support for either of these propositions would be challenging.
Still, there's a very real chance the next election will determine the fate of Social Security. Vote with that in mind, and meanwhile, prepare for the possibility of benefit cuts, which could happen regardless of who is elected -- or even if lawmakers make any changes to Social Security at all.