Posted by 06 May 2020
Congress has passed four bills dealing with the coronavirus epidemic, and is now working on a fifth. President Trump wants that bill to include a payroll tax cut.
This is not the first time that the president has suggested such a tax cut. When the initial economic effects of the coronavirus began to become apparent in March, he suggested the same thing. Congress has been reluctant to enact it, however.
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.
The president’s support for such a tax cut is not shared by many in Congress. Democratic members argue that such a tax cut would not provide relief to those who lost jobs or who are in the gig economy. Republicans are worried about its price tag (which could reach as high as $1 trillion a year) and its effect on the Social Security Trust Fund.
It remains to be seen what type of tax relief, if any, members of Congress will support in their latest coronavirus relief bill.
Do you support cutting payroll taxes as a way to stimulate the economy?