A Payroll Tax Cut is the Worst Stimulus Yet

Jp Valery | Unsplash

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After the White House ran out the clock on negotiating the next COVID-19 relief bill last week, President Trump enacted four new executive orders to try to circumvent Democrats’ demands. These new orders are largely unconstitutional, and they amount to nothing more than posturing without meaningful substance. One of the key orders arose from Trump’s oft-touted desire to pass a payroll tax cut, which had previously found little support from both Democrats and Republicans. Although Trump has referred to this unilateral, legally questionable payroll tax order as a “tax holiday,” there’s nothing to celebrate here. 

First of all, the executive order is not a tax cut. Article I of the U.S. Constitution clearly gives Congress the sole authority to set fiscal policy, thus limiting Trump’s ability to accomplish this misguided goal. Instead, the executive order simply delays the collection of payroll taxes (which fund Social Security and Medicare) from workers making under $4,000 every two weeks. Although some workers could see their paychecks temporarily increase, they will still owe that extra money back at the end of the year, barring later congressional action. It’s like having your December bonus deducted from your January paycheck.

Not only could payroll services tie up the money for months as they adjust accordingly, but uncertainty over whether the payments will be forgiven could mean that workers and employers will save or withhold the money anyway, rather than putting it towards debt, expenses, or other spending. This would completely defeat the point of the executive order, resulting in no net economic stimulus at the moment it’s most needed. 

Even if Trump does win reelection and forgive the payments, an immediate increase in pay is nevertheless far from guaranteed. Trump’s rushed rollout of the executive order—yet to be accompanied by IRS or Treasury Department guidance on implementation—leaves countless unanswered questions for both workers and employers. For example, because the eligibility cutoff is defined on a biweekly basis, what happens to people with variable incomes over the next few months, such as workers who change jobs or receive end of year bonuses?

Trump has also pledged to make this tax cut permanent if reelected—which he would still need congressional action to do—simply marking the latest Republican attempt to gut popular and necessary social programs by playing political games during a pandemic. Medicare and Social Security are already at risk of running dry by 2022 and 2032, respectively, and, if the payroll tax cut goes into effect, these critical programs are all but doomed sooner.

Finally, it’s important to note that the “tax holiday” doesn’t even pretend to help the most vulnerable subset of the workforce right now—the 30 million unemployed Americans who are not receiving paychecks. Meanwhile, Trump cut unemployment benefits in half and asked government agencies to “consider” banning evictions, if deemed necessary, a one-two punch that effectively amounts to spitting in the face of the group who currently needs government assistance the most. 

There’s no two sides to this particular issue. A payroll tax deferral is such a bad idea that not even Republicans were on board. Instead, Trump jammed through a half-formed plan via executive order, failed to solve a problem of his own making, and once again refused to meet the needs of the American people or heal a gravely wounded U.S. economy.

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