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Last weekend’s presidential executive orders and memoranda sought to advance a fourth round of “stimulus” in light of congressional inaction. Much like former President Barack Obama, President Donald Trump used his pen and phone to push his policy agenda.
The lead on his effort was his long sought after “payroll tax” holiday. Generally, for every dollar an American receives in wages, Washington imposes a 12.4 percent tax split equally between the employer and the employee. That money goes into the Social Security Trust Fund and is used to pay out Social Security benefits.
So, if Trump’s policy goes forward, the dollars flowing to the trust fund stop. This has predictably led to outrage from advocates, claiming that Trump is trying to destroy Social Security.
Yet dollars are fungible. A dollar from Social Security is the same as an unemployment dollar or a stimulus dollar or a Paycheck Protection Plan dollar. No matter where the money is coming from, Washington is deficit spending and creating new debt. The Federal Reserve is buying that debt and creating new dollars.
And, lest anyone think that the Social Security Trust Fund is flush with cash, it isn’t. Instead, Congress has required — by law — that the cash it collects be loaned out to the general treasury. If you look at Social Security’s books, you will see around $3 trillion in “special issue” bonds. These are just “IOUs” from Congress.
These IOUs are routinely paid back through the “normal” federal budget. But dollars are fungible, so the payback occurs with deficit spending, which is supported by new “normal” government debt. And so on.
That is where the accusations that Trump is “bankrupting” Social Security are misplaced. The nation’s entire financial house is bankrupt by that standard. Whether that debt is owed by the Social Security fund or the general treasury is secondary, all roads lead to the same place.
The coronavirus has shown us that our systems are not designed to handle this type of national crisis. State unemployment systems have gone haywire, buried with fraudulent claims and unable to deliver benefits. Stimulus checks were sent out quickly, yet required a jerry-rigged IRS tax refund system.
Meanwhile, this week saw Uber and Lyft find themselves in the fight of their lives. California courts and referendum questions have turned drivers for those companies into “employees” instead of independent contractors. Since they are now employees, Uber and Lyft will need to pay half of the Social Security payroll tax. But in other states, drivers for those companies remain independent, self-employed contractors.
This is where Social Security — and much of our other, New Deal-era social programs — show their age; the former turned 85 this week. Pre-COVID projections showed that Social Security would likely run out of its special IOUs in 2035, and be unable to fully pay benefits after that. So, if Social Security is to be sustainable, it needs new revenue.
Making Uber and Lyft pay a portion of the tax is one way to get it. But, rather than rely on fine legal distinctions as to whether someone is an employee or a contractor or pretend there is some magic in a payroll tax rather than an income tax, we should remind ourselves of a very simple truth.
Dollars are fungible.
If Washington believes getting money to families and individuals is the right course of action, we should probably reconsider our aged safety net infrastructure that was designed for a different time. Moving forward, the lessons of COVID can be applied. Unemployment, stimulus checks, and Social Security — with various other assistance and benefit programs — can be rethought to give more flexibility to Americans to pursue work that works for them. And they can be designed so that, in a time of crisis, complex bureaucracy does not impede speedy relief.
Call it a “negative income tax” or anything else you’d like. Because, at the end of the day, no matter how they get collected, created or spent, remember one thing: Dollars are fungible.
Michael Cianchette is a Navy reservist who served in Afghanistan and in-house counsel to a number of businesses in southern Maine. He was a chief counsel to former Gov. Paul LePage.