Elaine Thompson / AP
President Trump wants to boost US $ 100 billion for the US economy by pressing the “pause” button on wages to pay workers.
That will leave more money in people’s salaries. But the move – which Trump ordered over the weekend – is temporary. And that can cause headaches for workers, employers and the Social Security system.
Trump announced the suspension of payroll tax on Saturday as part of a series of moves designed to bypass Congress after negotiations on a more comprehensive bill to provide coronavirus relief suffered from break. He instructed the Ministry of Finance to stop collecting 6.2% payroll tax from workers making up to $ 104,000 a year. The move is expected to take effect next month.
“This will mean greater wages for working families as we race to produce a vaccine,” Trump told reporters gathered at his golf club in Bedminster. , NJ.
Critics say this special relief measure is wrong as it only benefits lucky people who are still employed. Furthermore, since the tax breaks are only temporary, workers are expected to return their taxes next year.
“What good would it be if people only got a temporary payroll tax reduction and had to put the money somewhere to save it in a single payment a few months from now?” Maya MacGuineas, chair of the Responsible Federal Budget Committee, asked. “That has really done very little to improve the economy.”
Trump insisted his goal, if he was re-elected, was to cut payroll taxes for good.
“If I win on 3 November, I intend to bypass these taxes and permanently cut the payroll tax,” Trump said. “I will make them permanent.”
But while the president can delay tax collection, only Congress can eliminate them entirely. There is no guarantee that lawmakers will do the same. And if they do, it would be a blow to Social Security, where deferred pay taxes are due.
“Social security is facing enormous financial pressure,” said MacGuineas. “Eliminating the program’s funding stream will make its finances a lot worse.”
White House economic advisor Larry Kudlow argued that the administration would simply borrow money if necessary to make up for any Social Security shortages.
However, the payroll tax suspension appears to have had little support outside the White House and a small group of presidential advisers. It never gained much traction in Congress. And the US Chamber of Commerce has made it clear that that’s not what its members are asking for.
“Those who love cutting payroll taxes are the American people,” said conservative Stephen Moore – a Trump campaign adviser, who was briefly nominated to the Federal Reserve for know.
Moore, who co-founded the Anti-Tax for Growth Club, is one of the most staunch advocates of the payroll tax reduction.
“Almost all working Americans will see their wages go up significantly,” he said of deferred tax collection. “That puts money in the economy and encourages people to work. I think it’s a very positive effect.”
Employers are expected to stop withholding payroll tax on September 1, but for many, it won’t be that easy. Companies need the IRS to provide guidance on exactly who qualifies for the tax suspension and how to track them so that taxes can ultimately be refunded.
“It’s going to be a mixed bag of recruiters,” said Pete Isberg, ADP’s vice president of government relations, which handles payroll payments for hundreds of thousands of employers. He said while some companies will be able to quickly tweak their computers to stop withholding, “some will be able to do that in October or November. And some may never. Now do it. ”
Isberg said the companies also want some assurance that they won’t be taxed on their workers, if Congress doesn’t forgive the bill. They will also have to try to explain to the employee why the take-home pay went up or not in September and how that could be reversed early next year.