What’s happening with the payroll tax?

One of the Executive Orders that President Trump issued last weekend suspended mandatory collection of the payroll tax for Social Security (not the Medicare portion), so that employers don’t have to withhold it from paychecks for the rest of the year (this applies to the worker’s portion of the tax. Employers haven’t had to remit their portion – 50% - since March, although they will still owe it at the end of the year). Of course, nobody is likely to be happy with suspension alone, since the result will be workers will have to make a balloon payment at the end of the year. And even if their employers take pity on them and decide to make the balloon payment themselves, the workers will then have to declare this payment as income in 2021 and pay income taxes on it.

So why is Trump touting this as a big step forward for workers? Because he’s coupling this with a “promise” that he will eliminate the tax altogether if he’s re-elected, so the implicit promise is that workers will never have to pay this back. Setting aside for a moment that he certainly doesn’t have the power to eliminate a tax without Congressional approval, he’s just handed Democrats a great campaign slogan.

Of course, this is because the Social Security payroll tax pays a large percentage of the cost of Social Security payments to seniors and the disabled. If this tax were eliminated, then either those payments would need to be cut drastically or Congress would have to pass other funding for those payments, which would of course require a lot of additional borrowing and a huge permanent increase in the deficit. I’m certainly not against increasing the deficit at this point to keep unemployed people from falling into poverty and maintain crucial support for the economy, but permanent deficit increases (such as the $2 trillion increase over ten years caused by the 2017 tax cuts, which overwhelmingly benefited the wealthy) are a different story altogether.

But not to worry, say Trump’s GOP apologists; there’s no threat to Social Security. He really doesn’t mean what he says about eliminating the tax. And even if he did, it’s clear that Congress would never support this move, since they’re not going to pass a huge permanent deficit increase (other than the 2017 tax cuts, of course) and they’re also not going to stand by while Social Security is gutted.

But if that’s true, then suspending collection of the tax simply amounts to saying “Great news! You won’t have the payroll tax deducted for the rest of the year, but you’d better not spend that additional money, since you’ll have to pay it back then. Put it in the bank and don’t touch it! You’ll be in a lot of trouble with the IRS next year if you miss the balloon payment.”

This is kind of hard to fit on a campaign bumper sticker.

The numbers

These numbers are updated every day, based on reported US Covid-19 deaths the day before (taken from the Worldometers.info site, where I’ve been getting my numbers all along). No other variables go into the projected numbers – they are all projections based on yesterday’s 7-day rate of increase in total Covid-19 deaths, which was 5%.

Note that the “accuracy” of the projected numbers diminishes greatly after 3-4 weeks. This is because, up until 3-4 weeks, deaths could in theory be predicted very accurately, if one knew the real number of cases. In other words, the people who are going to die in the next 3-4 weeks of Covid-19 are already sick with the disease, even though they may not know it yet. But this means that the trend in deaths should be some indicator of the level of infection 3-4 weeks previous.

However, once we get beyond 3-4 weeks, deaths become more and more dependent on policies and practices that are put in place – or removed, as is more the case nowadays - after today (as well as other factors like the widespread availability of an effective treatment, if not a real “cure”). Yet I still think there’s value in just trending out the current rate of increase in deaths, since it gives some indication of what will happen in the near term if there are no significant intervening changes.

Week ending	Deaths reported during week/month	Avg. deaths per day during week/month	Deaths as percentage of previous month’s
March 7	18	3
March 14	38	5
March 21	244	35
March 28	1,928	275
Month of March	4,058	131
April 4	6,225	889
April 11	12,126	1,732
April 18	18,434	2,633
April 25	15,251	2,179
Month of April	59,812	1,994	1,474%
May 2	13,183	1,883
May 9	12,592	1,799
May 16	10,073	1,439
May 23	8,570	1,224
May 30	6,874	982
Month of May	42,327	1,365	71%
June 6	6,544	935
June 13	5,427	775
June 20	4,457	637
June 27	6,167	881
Month of June	23,925	798	57%
July 4	4,166	595
July 11	5,087	727
July 18	5,476	782
July 25	6,971	996
Month of July	26,649	860	111%
August 1	8,069	1,153
August 8	7,153	1,022
August 15	7,655	1,094
August 22	8,010	1,144
August 29	8,382	1,197
Month of August	33,640	1,085	126%
Total March – August	190,411

Red = projected numbers

I. Total deaths

Total US deaths as of yesterday: 167,761

Deaths reported yesterday: 1,560

Yesterday’s 7-day rate of increase in total deaths: 5% (This number is used to project deaths in the table above; it was 5% two days ago. There is a 7-day cycle in the reported deaths numbers, caused by lack of reporting over the weekends from closed state offices. So this is the only reliable indicator of a trend in deaths, not the three-day percent increase I used to focus on, and certainly not the one-day percent increase, which mainly reflects where we are in the 7-day cycle).

II. Total reported cases

Total US reported cases: 5,306,851

Increase in reported cases since previous day: 54,854

Percent increase in reported cases since 7 days previous: 8%  

III. Deaths as a percentage of closed cases so far in the US:

Total Recoveries in US as of yesterday: 2,756,107

Total Deaths as of yesterday: 167,761

Deaths so far as percentage of closed cases (=deaths + recoveries): 6%

For a discussion of what this number means – and why it’s so important – see this post. Short answer: If this percentage declines, that’s good. It’s been steadily declining since a high of 41% at the end of March. But a good number would be 2%, like South Korea’s. An OK number would be 4%, like China’s.

I would love to hear any comments or questions you have on this post. Drop me an email at tom@tomalrich.com