Social Security: Trump takes aim at the payroll tax
A gambit from President Trump to pressure Congress into a payroll-tax holiday is sowing confusion across corporate America, said Richard Rubin in The Wall Street Journal. After Congress failed to agree on a stimulus package, the president “ordered Treasury Secretary Steven Mnuchin to allow the deferral of the 6.2 percent payroll tax on employees from Sept. 1 to Dec. 31” for workers making less than $104,000 per year. Trump “wants Congress—where lawmakers in both parties have been reluctant to approve a payroll-tax cut—to forgive those taxes permanently.” That would add $1,220 per year to the median taxpayer’s take-home pay. But there’s no guarantee that Congress will go along with the $100 billion expense. While Trump has long desired a payroll-tax cut, without new legislation workers would have to pay it back. There’s no mechanism for that, leaving employers reluctant to participate.
Both parties have “come down hard against payroll-tax cuts,” but for workers they have real value, said Stephen Kent in TheHill.com. “Payroll taxes are the largest taxes two-thirds of Americans pay,” and they hit middle-income earners harder, because income above $137,000 is exempt. George W. Bush and Barack Obama both cut or suspended payroll taxes during previous downturns. A tax suspension doesn’t fix all the problems with the payroll tax, but it’s a start.
There are far better ways to stimulate the economy, said Catherine Rampell in The Washington Post, given that 15.5 million Americans are unemployed and get no benefit from a payroll-tax cut. This is a badly thought out policy that could leave taxpayers with a “huge, unexpected bill” next April if Congress doesn’t accede to Trump’s demands. Or, more likely, employers will be left holding the bag, trying to get the money back from workers; good luck if they’ve moved on to other jobs. That’s why businesses are better off ignoring the policy, said Diana Ransom in Inc.com, instead of wading into this “minefield of tax issues.”
The biggest danger Trump’s plan poses is not to next year’s taxes, but to the long-term future of Social Security, said Mark Miller in Reuters.com. The 12.4 percent payroll tax, split evenly between employers and workers, helps fund our nation’s safety net, and Trump has made it clear he will “push for termination altogether” of the tax if he wins in November. If Congress won’t go along, it’s conceivable that the president could “continue to defer contributions under the emergency powers he is leveraging now.” Social Security is already in trouble, with the trust fund reaching exhaustion in 2035, and the real design here may be to “defund” it even faster.