Trump’s Payroll Tax Plan Fizzles
Taxes

Trump’s Payroll Tax Plan Fizzles

Kevin Lamarque/Reuters

President Trump’s payroll tax deferral plan is fizzling.

The plan, meant to boost workers’ incomes by allowing their employers to postpone collection of the 6.2% employee share of the tax funding Social Security, took effect at the beginning of the month. So far, though, big employers are rejecting the idea, concerned about the complexity of administering a temporary deferral and about having to pay back the uncollected taxes next year.

The New York Times’s Jim Tankersley reports:

“More than a month after Mr. Trump signed an executive memorandum to defer the collection of the payroll taxes that workers pay to help fund Social Security, few companies or people are taking part. Trade groups and tax experts say they know of no large corporations that plan to stop withholding employees’ payroll taxes this fall. As a result, economic policy experts now say they expect the deferral to have little to no effect on economic growth this year.”

Small businesses and even some Republican-run states are balking at Trump’s tax deferral, too. And Bloomberg News's Laura Davison and Steve Matthews add:

“Even the House of Representatives isn’t going ahead, concluding it ‘would not be in the best interests’ of employees. The Senate’s still mulling it over. That largely leaves the federal government largely on its own in proceeding, with its workers.”

No trust in Trump: As The Washington Post’s Aaron Blake notes, those decisions to not participate in the deferral come even as Trump has repeatedly pledged to have the deferred taxes forgiven if he’s reelected. “The reaction shows how little confidence American businesses — and even some red states — have in Trump’s promise,” Blake writes. “There’s very little reason not to defer the taxes if you think they’ll be forgiven at a later date.”

Trump reiterated his promise in a tweet Thursday night:

“When we win I, as your President, will totally forgive ALL deferred payroll taxes with money from the General Fund. I will ALWAYS protect Seniors and your Social Security! Sleepy Joe Biden will do the opposite, he will raise your taxes and DESTROY our Country!”

Trump’s tweet is problematic in a number of ways. First, forgiving the taxes would require congressional action, making it less likely. Second, the idea of transferring money from the Treasury Department’s general fund — “America’s checkbook,” as the Treasury Department website calls it — and of “terminating” the payroll tax completely, as Trump has indicated he would do, would at the very least raise some serious questions about Social Security’s funding and future as well as the federal budget deficit.

Democrats and Social Security advocates warn that Trump’s promise to pursue the elimination of the payroll tax is tantamount to ending Social Security — a charge that fact-checkers have said is partly false or mostly false.

Putting Social Security in play? Still, Trump’s plan, or lack of one, does represent some risk. “Trump, in effect, has proposed a dramatic restructuring of how Social Security is financed by not relying on the payroll tax as a dedicated source, but instead by tapping the general fund,” Josh Boak of the Associated Press wrote last month. “The risk is that the loss of a dedicated funding source could destabilize an anti-poverty program that provides payments to roughly 65 million Americans. It also could force people to cut back on the spending that drives growth so they can save for their own retirement and health care needs if they believe the government backstop is in jeopardy.”

The problem is that Trump has essentially pledged to protect Social Security while getting rid of the taxes that fund it, without providing a clear and realistic source of alternate funding. “Over a 10-year period, Trump’s idea would blow a $16.1 trillion hole in a U.S. budget that is already laden with rising debt loads,” Boak reported. When Trump was asked last month how the general fund could cover the costs of Social Security when the government was already incurring large deficits, he said, “We’re going to have tremendous growth.” But the kind of extraordinary growth needed to offset the loss of payroll tax revenues isn’t likely.

That brings us back to the economy: With Congress having failed to pass another coronavirus relief package and companies declining to implement the payroll tax deferral, economists warn that household incomes could take a hit, slowing the economic recovery. “Without additional fiscal support in the next few weeks,” Mark Zandi, chief economist at Moody’s Analytics, told Bloomberg, “odds that the economy will backslide in the fourth quarter are well over even.”

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