Trump’s dubious move to cut Social Security taxes won’t revive the virus-infected economy
By
Terry H. Schwadron, DCReport Opinion Editor
Donald Trump moved
Saturday on his desire to drop the payroll tax for the rest of the year to
bring back the economy, a proposition that most economists, and even Senate
Republicans, reject.
Trump, who has hung
back as negotiators for the White House and Democratic leaders ran into an
impasse over a new pandemic aid package, offered a legally questionable
executive order to eliminate the payroll tax as the main tool for the role he
seeks as the last-minute hero.
What is not at all
clear, however, is how dropping six months of payroll tax would help, and
whether Trump can take the action by himself.
In a time of pandemic
and economic emergency, we need direct aid to individuals and businesses to
stay afloat and a quick infusion of lots of cash. Eliminating payroll taxes for
six months does neither.
As presented, the payroll tax cut would be part of executive orders that would pay state-paid unemployment benefits through the end of the year, extend eviction and student loan protections—orders short on exactly the detail that has derailed the compromise talks. Where the states get the money was not explained.
Normally, that
authority resides in the Congress and its Constitutional power over spending.
There will be lawsuits and messiness to follow, which seems to be fine by
Trump, who has already dangled a permanent payroll tax cut if he’s re-elected.
Trump believes the law is as Trump wants, and objectors can see him in court.
But let’s set aside
the questionable authority here. Cutting the payroll tax feels like the wrong
tool for the problem at hand.
What virtually every
other leader says is that in a time of pandemic and economic emergency, we need
direct aid to individuals and businesses to stay afloat and a quick infusion of
lots of cash.
Eliminating payroll taxes for six months does neither, amounting to too small a total to be a stimulus, representing a drawn-out approach, and further harming both Medicare and Social Security in a health emergency.
Eliminating payroll taxes for six months does neither, amounting to too small a total to be a stimulus, representing a drawn-out approach, and further harming both Medicare and Social Security in a health emergency.
Here’s the conclusion
of the Center for Budget and Policy Priorities:
“A payroll tax cut would constitute poor and inefficient economic stimulus. Other stimulus measures that would be highly effective and for which there is great need — such as aid to help states cover their $650 billion in revenue shortfalls and avoid deep cuts to state services, strengthened nutrition assistance, extended unemployment insurance, and measures to maintain and bolster health coverage and care — should not be held hostage to a poorly conceived payroll tax cut proposal.”A New York Times analysis said, “Most economists, even conservative ones, do not rank a payroll tax cut anywhere close to the top of their list for best ways to support and stimulate the American economy as it struggles to climb out of the recession.”
Team Trump argues that
by reducing the cost of employing someone, and increasing the amount of money
workers take home, the cut will make both hiring and job-seeking more
attractive. So, how much would that be?
Payroll taxes are on a
sliding scale but average 7.6% of weekly pay for workers and the same for
employers. That money goes mostly to Social Security up to $137,700 in income,
with less for Medicare.
Of course, if you’re
out of work, there is no benefit here. Aren’t those out of work the people we
want to help?
Rather, the perceived benefit is all to incent employers to speed hiring. But for six months in the middle of pandemic? How does this make sense?
Besides, Congress has already passed a bill this year that delays —but does not eliminate — the employer side of those taxes, meaning companies will not have to start paying their liabilities for this year until next year.
Rather, the perceived benefit is all to incent employers to speed hiring. But for six months in the middle of pandemic? How does this make sense?
Besides, Congress has already passed a bill this year that delays —but does not eliminate — the employer side of those taxes, meaning companies will not have to start paying their liabilities for this year until next year.
Overall, eliminating
the payroll tax would favor high earners.
Suspending the taxes
would cost the government about $400 billion from August through the end of the
year, according to estimates from the Committee for a Responsible Federal
Budget in Washington.
Senate Finance
Chairman Chuck Grassley, a Republican from Iowa, warned this week that a
payroll tax cut would create a “public relations problem,” arguing that direct
payments to families would prove more meaningful to individual voters.
A Fix Missing the
Problem
Despite Trump’s
obsession with cutting the payroll tax, it seems the paper-and-pencil exercises
show there is no quick, effective infusion of money in the economy nor
substantial direct help for individuals.
Obviously, the
pandemic itself remains the biggest disincentive to the economy. Nothing in the
executive orders Trump promises helps expand testing or equipping businesses,
schools, child-care facilities or anyone else with tools to deal with the
effects of the disease.
Business’ main problem
is the lack of customers for their products — both because of social distancing
measures and because many customers’ incomes have fallen dramatically as
unemployment has risen. Businesses will not hire (or retain) more workers or
invest in more equipment than they need to produce the goods and services they
can actually sell.
At the end of the day,
in more normal times, I would want to keep the payroll tax just to make sure we
have functioning programs for the health and welfare of seniors, services which
otherwise would require a congressional bill to restore if the tax is cut.
In the time of the
pandemic, using this payroll tax as a major vehicle for aid seems way off the
mark.