Payroll tax cuts have had mixed results in the past, and some economists argue that it is not the best way to boost the economy right now.
A cut in payroll taxes would reduce the amount of workers’ paychecks to finance federal programs including Social Security and Medicare.
Congress would have to decide how much to reduce the rate and how long the tax exemption would last.
Currently, workers pay about 7.65% of their salary income. Employers match the amount while those who are self-employed pay both shares, although they can deduct the part of the employer.
In 2011, a temporary cut in payroll tax was implemented as a result of the financial crisis. He cut the employee-side tax by 2 percentage points.
It will not help those most in need.
Businesses may see a boost, but the virus remains a problem.
A cut in the employer-paid tax would give businesses a little more liquidity and could help those struggling to pay rent and other bills.
But it won’t immediately help companies that have laid off employees or remain closed. Some may not return to business until the virus is under control and states can be fully reopened.
An emergency loan program created by Congress made money available to small businesses affected by the pandemic. The loans are forgivable if the company used the money to keep employees on the payroll, but they were meant to cover costs of just two months.
A tax cut reduces federal revenue
The payroll tax cut implemented in 2011 reduced federal tax revenue by $ 112 billion in its first year. It was then extended to 2012, at an additional cost of $ 115 billion, according to the Congressional Research Service.
Congress will likely replenish Social Security and Medicare funds with general revenue, as it did in the past.
But Senate Finance President Chuck Grassley, an Iowa Republican, warned this week that a payroll tax cut would create a “public relations problem.”
“People would think that we are damaging Social Security funds when we really are not,” Grassley said.
A handful of Republicans raised concerns about a payroll tax cut at a party lunch Tuesday with Treasury Secretary Steven Mnuchin and Trump’s chief of staff Mark Meadows, according to a person in the room.
“Maybe three people raised it and they all said the same thing: maybe this is not necessary,” said the person.
Lauren Fox and Manu Raju of CNN contributed to this report.
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