Could a payroll tax cut be a Trojan horse to cut Social Security and Medicare?
Could a payroll tax cut be a Trojan horse to undercut Social Security and Medicare?
President Trump has thrown an unnecessary wrench into the next coronavirus stimulus package negotiations by demanding that it include a payroll tax cut. Earlier in the week, his advisor, Stephen Moore, foreshadowed Trump’s red-line. “High-ranking White House officials have told me that we will not sign a phase four deal without a payroll tax cut,” Stephen Moore, a White House economic adviser, told The Washington Post. “I have talked to several high-level people in the White House who said the president will not sign [the legislation] if it does not include a payroll tax cut.” Trump confirmed this view, although in his usual equivocal way, during an interview with Chris Wallace, saying, “I would consider not signing it if we don’t have a payroll tax cut.”
When a polarized Congress manages to unite in opposition, you know an idea must be terrible. Republicans and Democrats alike are sour on a payroll tax holiday and for good reason. It’s an ineffective, policy tool that isn’t suited for the current crisis.
A temporary payroll tax cut could be an effective tool when trying to stimulate consumer demand during a normal slowdown; however, the current economic malaise isn’t caused by a financial recession, but rather a health crisis and fear of coronavirus. “Nobody wants to go on a cruise, nobody wants to go on a long airplane flight,” Howard Gleckman, of the Urban Institute (and a Forbes contributor), toldCNBC. “If you put another $20 in their pockets, they’re still not going to go on a cruise and they’re still not going to go on a long airplane flight.”
A payroll tax, as the name implies, is levied on Americans who are on the company payroll. Employees typically have 7.65 percent their salary withheld, up to $132,900, and remitted to the government to cover Social Security and Medicare. However, if an individual isn’t working, they don’t pay a payroll tax. Therefore, while a payroll tax cut might help Americans who are working, it wouldn’t do anything for the tens of millions who are currently unemployed because of the coronavirus pandemic. “A payroll tax cut would do nothing to help the 20 million workers who have lost their jobs, and little for those working significantly reduced hours,” Senator Ron Wyden (D-Oregon) told the Washington Post. “Another payroll tax cut for employers would also shower the country’s wealthiest corporations with billions of dollars.”
In a March op-ed in The New York Times, University of Michigan economists Betsey Stevenson and Justin Wolfers argued that a payroll tax cut would give “the biggest breaks to those with the biggest paychecks, and delivers nothing to those who have lost their pay.
