American workers and the elderly have had their hardest hands in decades this year. Coronavirus 2019 disease (COVID-19) has devastated the U.S. economy, sent unemployment levels to levels not seen consistently for more than eight decades, and costing the lives of nearly 160,000 Americans.
It is this unrest that forced Congress to continue and President Trump to enact the Aid, Relief, and Economic Security (CARES) Coronavirus Act into law on March 27th.
President Trump standing behind the presidential podium. Image Source: Official White House Photo by Joyce N. Boghosian.
The CARES Act did not do much for the average American
The CARES Act is an absolute monster in terms of size. Set at $ 2.2 trillion, it is nearly three times the cost of the relief package designed to protect banks during the financial crisis. Finally, it provided much-needed cash to emergency businesses, small businesses, hospitals, and the Unemployment Benefit Program – the last of which was giving unemployed caregivers an extra $ 600 a week between April 1 and July 30.
The big draw of the CARES law, however, was the $ 300 billion set for direct incentive payments to the public. At their maximum, these economic impact payments could total $ 1,200 for an individual or $ 2,400 for a couple filing together (depending on adjusted gross income), with dependents over the age of 16 and under the addition of $ 500 each to what a parent or caregiver could get.
While throwing a boatload of cash at companies was valuable, it did little to help the average American who is struggling financially. An estimated three-quarters of incentive recipients spent their payouts in four weeks or less, which does not help if there is no clear end in sight for the COVID-19 pandemic.
With another round of stimulus hurts needed, it should come as little surprise that Democrats and Republicans have been anxiously negotiating a new deal in recent days. As of late Thursday, August 6, no new incentive trade had been reached.
Image Source: Getty Images.
The proposal to cut President Trump’s tax advantage is reviving
The problem is, the Senate legislative session after the 4-week recession July 4 lasts only three weeks. After Friday, August 7, the First Chamber is in a full month in recession. This means that legislators (since the time of this writing) are bringing these negotiations to the fore. Financial aid is now needed for many American families, and discussing another month delayed due to legislative repercussions can be rampant.
This inability of Democrats and Republicans to find enough common ground between the HEROES Act and the HEALS Act is what has allowed Donald Trump’s terrible incentive proposal to find new life.
Upon leaving the Oval Office for Ohio, I instructed my staff to continue working on an executive assignment regarding tax cuts, eviction protection, unemployment extensions, and student reimbursement options.
– Donald J. Trump (@realDonaldTrump) August 6, 2020
As some of you may remember, President Trump was adamant before the Senate returned from the recession on July 20 that he would not sign a new round of stimulus if there was no provision to stop or reduce temporary taxes – ie pay the tax by working Americans and employers who fund Social Security and Medicare programs.
The thinking here is that if the payroll tax were temporarily suspended, the tax liability of workers and / or companies would decrease. This would put more money in the pockets of workers and businesses, thereby helping a financial malpractice flow.
With the Democratic-led House and the Republican-led House still deadlocked on a handful of key incentive issues, President Trump has threatened to sign an executive mandate that would extend eviction protection, improve unemployment benefits, provide student loans and repayment options. ..cut tax cuts.
Image Source: Getty Images.
Trump’s stimulus proposal would decipher Social Security
The concern is that, if Trump gets his wish from a tax cut, it would do nothing more than trade short-term gains for long-term pain. Plus, it’s even debatable whether the gains in the short term would be all that noticeable.
First, a tax cut would only provide a direct benefit to people who are still working. Probably it is people who are forced out of the labor force who have the greatest need for financial help. A tax cut would do nothing for those tens of millions of unemployed workers who look outside.
But the bigger problem here is that the taxman is the primary source of revenue from Social Security. Last year, it accounted for $ 944.5 billion (89%) of the $ 1.06 trillion collected. Reducing or stopping this source of income for even a short period would be catastrophic for Social Security, which is already dealing with an estimated $ 16.8 trillion in outstanding commitments between 2035 and 2094, according to the latest report by Social Security Board of Trustees . In all likelihood, a holiday of payroll tax of any significant length would advance the day so Social Security is expected to deplete its wealth reserves. If these reserves are depleted, a maximum of 24% reduction in pensions awaits retired workers.
Of course, there is a viable legal question as to whether Trump has the legal authority to reduce taxes. The U.S. Constitution specifically leaves Congress specifically the power to levy and collect taxes, so it is unclear if Trump’s executive order to reduce payroll taxes or stop it would have a legal merit.
The point is, reducing payroll taxes is a terrible idea in any significant way, and we should all hope it does not work out.
