The COVID-19 pandemic has dominated American life since March, and it’s clear that, as President Trump recently admitted, the U.S. outbreak will get worse before things start to improve. And as the country grapples with the brutal coronavirus recession, lawmakers are meeting this week on Capitol Hill to discuss another major aid package, one that could include provisions like direct stimulus payments to most Americans and Increase unemployment benefits for the tens of millions who have lost their jobs so far this year.
Trump recently made clear that he wants a payroll tax exemption included in any stimulus deal Congress reaches. Its premise is that eliminating payroll taxes for the rest of the year would put the money directly in the pockets of working Americans, who could pump into an economy that urgently needs more consumer spending. He claims that a payroll tax exemption would also benefit employers, and perhaps prevent further layoffs, a worthy goal at a time when unemployment is still at historically high levels.
But Republican lawmakers who control the United States Senate clearly disagreed with him. They have left a payroll tax cut from their COVID-19 relief proposal. These are some of the reasons why it was never really a good idea to start.
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1. A cut in payroll taxes would mainly benefit the wealthy
With a total payroll tax cut, meaning no Social Security or Medicare taxes are deducted from paychecks, the richest 20% in the country would get 64% of the benefit, according to the Fiscal Policy Institute and Economic.
Leaving out the top 5% of the winners of that top quintile (their savings would be much highest) 15% of workers earning between $ 118,700 and $ 263,000 a year would cut an average of $ 3,750 from their 2020 tax bills. By contrast, the poorest 20% of Americans, those with lower incomes at $ 24,200, they would average about $ 250 in tax savings
2. It would not help the tens of millions of Americans who are unemployed
Although unemployment benefits are taxable, they are not subject to payroll taxes. As such, a payroll tax exemption would in no way benefit unemployed Americans. It also wouldn’t help those at risk of losing their jobs in the coming weeks, as governments in some of the many states where new COVID-19 cases have skyrocketed, re-impose restrictions in an attempt to stop their outbreaks. .
3. A cut in payroll taxes would harm Social Security
Social Security gets most of its income from payroll taxes, and even before COVID-19, the retirement program faced a shortage of funds. In the coming years, she will pay more benefits than she receives from taxes, and that imbalance is expected to widen, leading to the complete depletion of her Trust Funds by 2035.
If Congress doesn’t act to shore up the program’s finances before that happens, cuts to Social Security benefits will be almost inevitable. But a payroll tax cut for the rest of this year would force the program to dig deeper into those reserves sooner, meaning they would run out faster, causing problems for older people in the future.
Good intentions, wrong tactic.
The idea of the payroll tax exemption made some sense from some perspectives: there is no discussion of that. But it is not the best tool to combat the specific financial crises facing the country and its people now. Apparently, most Republican senators acknowledge this. As such, they are making progress in developing a stimulus package for consideration by Congress that focuses on other forms of relief.
