Elaine Thompson / AP
President Trump wants to give a $ 100 billion boost to the U.S. economy by hitting the “pause” button on workers’ payroll taxes.
This would leave more money in people’s salaries. But the move – ordered by Trump over the weekend – is only temporary. And it can produce headaches on the road for workers, employers and the Social Security system.
Trump announced the payroll tax suspension Saturday as part of a series of moves created to oust Congress after talks on a more comprehensive bill to ensure coronavirus relief broke down. He instructed the Treasury Department to stop collecting the 6.2% payroll tax from workers earning up to $ 104,000 a year. The measure is expected to take effect next month.
“That means higher pay for working families as we race to produce a vaccine,” Trump told reporters gathered at his golf club in Bedminster, NJ.
Critics say this particular relief measure has been deceived as it only benefits people who are lucky enough to have a job yet. Moreover, because tax relief is only temporary, workers are expected to pay taxes next year.
“What’s the use of this if people just get a temporary payroll tax cut and have to put it somewhere to save it to repay the money on a two-month payroll?” asked Maya MacGuineas, chairwoman of the Federal Accountability Committee. “This has really done very little to improve the economy.”
Trump insists his goal, if he is re-elected, is to lower the payroll tax for good.
“If I win on November 3, I plan to forgive these taxes and make permanent payroll tax cuts,” Trump said. “I will make them all permanent.”
But while the president may delay tax collection, only Congress can eliminate them altogether. There is no guarantee legislators would do that. If they did, it would be a severe blow to Social Security, which pays late payroll taxes.
“Social Security is already facing major financial pressures,” MacGuineas said. “Removing from the source of income that program funds would make his finances much, much worse.”
White House economic adviser Larry Kudlow argued that the administration would simply lend money if needed to make up for any Social Security shortfalls.
However, the payroll tax suspension seemed to have little support outside the White House and a small circle of presidential advisers. It never won much traction in Congress. And the American Chamber of Commerce made it clear that it is not something its members were looking for.
“The people who want payroll tax cuts are the American people,” said conservative Stephen Moore, a Trump campaign adviser who was briefly nominated for the Federal Reserve.
Moore, who co-founded the Anti-Growth Club, has been one of the most cautious advocates for payroll tax relief.
“Almost all Americans who are working will see a good rise in their check,” he said of the deferred tax collection. “It puts money into the economy and stimulates people to work. I think this is a very positive effect.”
Employers should stop withholding payroll tax on September 1st, but for many it will not be so easy. Companies need guidance from the IRS on exactly who has the right to discontinue their taxes and how to oversee them so that those taxes are eventually paid.
“It will be a mixed purse of employers,” said Pete Isberg, deputy head of government relations for ADP, which handles salaries for hundreds of thousands of employers. He said while some companies will be able to fix their computers quickly to stop paying payroll taxes, “some will be able to do so in October or November. And some may just never do it. “.
Isberg said companies also want some reassurance that they will not be okay with their workers’ taxes if Congress does not forgive the law. They will also have to try to explain to employees why home payment is or is not rising in September, and how this could be reversed early next year.