The S&P 500 recorded its fifth positive week out of the past six, moving within 1% of its record high set less than six months ago, and the NASDAQ surpassed its record set in the previous week topping the 11,000-point threshold for the first time on Thursday. The nation’s wounded labor market continues to heal, albeit at a slower pace than in the late spring and early summer. The government reported the economy added 1.8 million jobs in July.
Washington Gridlock
Stocks’ weekly gains came despite a rise in anxiety over the lack of conclusive progress toward an additional congressional package targeting the coronavirus and its economic impact. Talks between White House officials and Democratic leaders ended without a breakthrough prompting the President to issue an executive order on Saturday. if t order withstands the legal challenge it most certainly will receive then the unemployed will receive an additional payment $300/week of Federal funds through the end of the year. He also ordered a payroll tax holiday which means no deduction for Social Security and Medicare Tax.
What Does A Payroll Tax Holiday Do?
The 4 month tax holiday will defer collections of payroll tax. It has a positive short term effect for many. If you make less than $104,000 per year, your paychecks will probably be a little bigger for the rest of 2020. What it really does is improve the liquidity of struggling business and helps keep them solvent. It is not a great fiscal stimulus but is an effective way to keep more businesses open until we get through the pandemic, with the hope that when we do those businesses start making money and hiring again.
Will Social Security Last Through My Retirement?
A potential payroll tax holiday brings up the question of Social Security’s future solvency. Understanding the facts are critical. No doubt, Social Security faces funding challenges, but not immediately and not bankruptcy. Benefits are paid through payroll taxes collected from current workers and their employers, and the program currently operates with a surplus of about $2.9 trillion.
The tax holiday will reduce the surplus and with a rising percentage of retirees to workers that surplus will be gone soon enough. The latest projection has the combined Social Security trust funds that pay retirement and disability benefits running out of cash reserves by 2034. A fact they make you aware of on your Social Security statement. Running out of cash reserves does NOT leave Social Security bankrupt and unable to pay any benefits. Even if Congress does nothing to shore up the system by 2034, Social Security will be able to pay out 79 percent of promised benefits until 2090. The last time Social Security nearly depleted its reserves was in the early 1980s, when Congress shored up the program by gradually increasing the full retirement age from 65 to 67 and started to tax benefits based on income levels. The takeaway is Social Security in not going away. Changes will be made eventually but they are unlikely to impact those currently eligible to receive benefits..
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