President Donald Trump’s weekend blitz of executive orders included a promise of tax breaks for workers, but policymakers say the White House has left several critical questions unanswered, including who will be responsible for collecting the deferred tax and how and when it will need to be paid for in the event that it is not made permanent, which Trump cannot do without congressional approval.
Most economists – along with legislators on opposite sides of the aisle – have been furious about a cut in tax services, pointing to the relatively limited effectiveness because it does not help people become unemployed, retire or otherwise out of work. But the Trump administration has been pushing for one since the early days of the pandemic.
“Payment tax holidays have a mixed economic record,” the Tax Foundation said in March, when the Trump administration first pushed for a temporary moratorium on the collection of taxes funded by Social Security and Medicare programs.
At first glance, the executive order may resemble a provision in 2011 and 2012 that reduced the share of workers in the tax rate by two percentage points. But that earlier tax cut was legislated by Congress instead of coming out of the White House, and the monetary difference was made by a transfer of the general fund from the treasury to the Fund for Social Security Trust – a move that only it Congress can authorize, despite Trump’s assurance of forgiveness.
It is far from clear to what extent Corporate America will sign up to the plan outlined in the executive order. Walmart, Target, McDonald’s, CVS, UnitedHealthcare and Apple all did not respond to requests for comment on whether or how they would implement a tax bill.
The order is sure to address legal challenges, both from Democratic lawmakers who oppose Trump’s strategy of trying to bypass Congress, and from states that force the mandate to address some of the lack of funding. cover, although their own budgets are taxed with public health costs and a steep slide in tax revenue.
Companies are worried that they will be caught in the middle. “There are many unresolved questions about the implementation of this proposal, [and] some of the unanswered questions are fairly basic, “said Garrett Watson, senior policy analyst at the Tax Foundation.” When would the deferred tax return? No date has been set. There are many options here that need to be addressed. “The other big thing that depends a lot is whether or not this delay turns into a significant reduction in the debt tax,” he said.
Payroll companies have said it will be problematic, if not impossible, for companies to make the changes needed to pass on the extra money.
Business tax and accounting departments have almost no say in how they can implement a proposal, and how they can handle the potentially burdensome issue of returning that money from workers – or having to pay for it themselves.
“Comments from payroll companies indicate that it will be problematic, if not impossible, for companies to make the changes needed to pass on the extra money,” said Mark Hamrick, senior economic analyst at Bankrate.com.
“The concern is, it’s not just free money,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “It’s not if you owe the money, it’s if you owe the money,” Elson said. “There will have to be some standard to address this, otherwise you will create great inequality and confusion,” he said.
For workers who may be dependent on the extra money in the coming weeks, an abrupt reversal – combined with a sudden new obligation to repay those funds – could be a financial shock wave.
Through congressional intervention, that money will have to find its way back into the IRS coffers, and its process can be very painful for workers.
“There are pretty high stakes there … At the very least there will be a lot of breath to move forward here,” Watson said.
‘You don’t want to be in a position where you have to keep monthly payroll taxes from employees instead. That would create a terrible problem for people, ”said Eric Toder, co-director at the Urban-Brookings Tax Policy Center.
For workers who could depend on the extra money in the coming weeks, an abrupt reversal combined with a sudden new obligation to repay those funds could be a financial shock wave, Toder said. “They get a big bump in their paycheck in a few months and suddenly they have to pay it all back.”
It is still unclear how the Treasury and the IRS would structure or require repayment, and in the worst case scenario, it could pull the rug out of many lower paid workers. “It could be that you get almost all of your paycheck withdrawn in one pay period,” Toder said.
Lawyers for workers were critical of the plan. Organized labor councils such as the AFL-CIO’s Department of Transportation have issued executive orders, saying the White House should do more to work with Congress than offer unilateral half-measures. “It is a movement that will cost jobs, weaken an already vulnerable economy, and … further harm workers,” the organization said.
Even some employees who would initially benefit from the proposal were ambivalent about the policy, especially seeing the potential to repay a lump sum.
“The roughly 7 percent per salary would be a negative improvement,” said Doug Larocca, a 28-year-old Baltimore resident who works in marketing.
Larocca criticized a tax cut because it would do nothing to help the many people he knows who have lost jobs, and he worries about having a surprise tax if the promise of permanent forgiveness does not come. “I do not want to end up paying back the difference next year. “I would rather Congress draw up a deal that helps working people,” he said.
