President Trump has long supported a payroll tax cut, but Congress has been reluctant to follow his lead. In response, the president has put forward a plan allowing businesses to defer the collection of payroll taxes through the end of the year. This move has met resistance from both employers and employees, who contend that doing this may actually hurt workers.
The desire for a payroll tax cut has been a consistent theme with President Trump. When the initial economic effects of the coronavirus began to become apparent in March, he suggested the same thing. Congress has not included it in any coronavirus relief bill, and is not discussing such a tax cut currently.
In response, Trump directed the Treasury Department to give businesses the option of deferring collection of payroll taxes through the end of the year. This is not a tax cut, however, since the deferred taxes would have to be collected at the beginning of 2021. In essence, this would give employees a boost in pay through December, but double the payroll taxes collected on their paycheck in the first few months of 2021.
Many business owners have refused to participate in this plan. They point out that while employees may get a temporary take-home boost in their pay, they will see a big reduction in take-home pay next year. The plan is optional for private sector employees, but mandatory for federal employees. The union representing many federal workers has asked that this tax deferral be optional for them.
Payroll taxes are levied on income to pay for Medicare and Social Security. Cutting these taxes would affect every worker, especially those with lower incomes. An income tax cut mainly benefits higher-income workers, since lower incomes are not subject to the tax. Payroll taxes, on the other hand, are levied on the first dollar of income, and are capped for higher-income workers.
Since 2009, there have been other payroll tax cuts that have been aimed at stimulating the economy. Some economists argue that since they affect lower-income workers, they provide money to go back into the economy more quickly. Others argue that there are more effective ways to stimulate the economy, such as direct payments to individuals. Some critics are also concerned about the long-term effect of cutting payroll taxes on Medicare and Social Security.
Do you support President Trump's plan to defer collection of payroll taxes and then collect those deferred taxes next year?