American workers and senior citizens have been handed out by their heaviest hands in decades this year. Coronavirus disease 2019 (COVID-19) has devastated the US economy, sent unemployment to levels not seen for more than eight decades, and cost the lives of nearly 160,000 Americans.
It was this turmoil that forced Congress to pass and President Trump to sign the Coronavirus, Aid and Economic Security (CARES) law on March 27.
The CARES law did little for the average American
The CARES law is an absolute monster in terms of size. The $ 2.2 trillion buildup is close to tripling the price of an aid package designed to protect banks during the financial crisis. Ultimately, it supplied much-needed money to troubled industries, small businesses, hospitals, and the unemployment benefit program – the latter involving providing unemployed beneficiaries with an additional $ 600 a week between April 1 and July 30.
However, the major attraction of the CARES Act was $ 300 billion set aside for direct incentive payments to society. On a maximum scale, these economic impact payments can amount to $ 1,200 per individual or $ 2,400 per couple filed jointly (depending on adjusted gross income), with dependents aged 16 and under, plus $ 500 each. which a parent or guardian can receive.
Although throwing a boat of cash proved valuable, it didn’t help the average American, who was struggling financially. Approximately three-quarters of incentive recipients have spent their payments in four weeks or less, which does not help when there is no clear end to the COVID-19 pandemic.
With another round of incentives so much needed, it should come as no surprise that Democrats and Republicans have been relentlessly negotiating a new deal in recent days. As of the end of Thursday, August 6, no new stimulus deal has been reached.
President Trump’s proposal to reduce the payroll tax finds new life
The problem is that the Senate legislature session, after a two-week break on July 4, lasts only three weeks. After Friday, August 7, the Senate will be on vacation for a month. This means that the legislators (at the time of this writing) are conducting these negotiations to completion. Financial assistance is already needed for many American families, and delaying discussions by another month due to the legislative break could be catastrophic.
This inability of Democrats and Republicans to find a sufficiently common position between the HEROES Act and the Health Act is what allowed Donald Trump’s terrible stimulus proposal to find new life.
After leaving the Oval Office in Ohio, I informed my staff to continue working on the Enforcement Order regarding payroll tax cuts, expulsion protection, expanding unemployment, and student loan repayment options.
– Donald J. Trump (@realDonaldTrump) August 6, 2020
As some of you may recall, President Trump was adamant before the Senate returned from the July 20 break that he would not sign a new round of incentives unless it included a provision to suspend or reduce payroll taxes. .е. the tax paid by working Americans and employers who fund Social Security and Medicare programs.
The idea here is that if the payroll tax is suspended, the tax liability of workers and / or companies will decrease. This would put more money in the pockets of workers and businesses, thus helping to avoid financial turmoil.
As the Democratic-led House and the Republican-led Senate still close a handful of key stimulus issues, President Trump has threatened to sign an executive order that will expand expulsion protection, boost unemployment benefits, provide of borrowers student loans with repayment options and … reduce payroll taxes.
The proposal to stimulate Trump will reduce social security
The concern is that if Trump gets his desire to cut the payroll tax, it will do nothing more than trade in very short-term profits for long-term pain. Plus, it’s even debatable whether short-term profits will all be noticeable.
First, reducing the payroll tax would only provide immediate benefits for people who are still working. Perhaps the most in need of financial assistance are those who have been fired. Reducing the payroll tax would do nothing for those tens of millions of unemployed workers outside who are looking for it.
But the bigger problem here is that payroll tax is the main source of social security revenue. Last year, he was responsible for $ 944.5 billion (89%) of the $ 1.06 trillion raised. Reducing or stopping this source of income for even a short period of time would be catastrophic for social security, which is already facing an estimated $ 16.8 trillion for unfunded liabilities between 2035 and 2094, according to the latest report of the Board of Trustees. of social security. In all likelihood, the payroll tax break for any significant duration would shift the date by which social security is expected to deplete its asset reserves. When these reserves have disappeared, pension workers expect up to a 24% reduction in off-board benefits.
Of course, there is a viable legal question as to whether Trump has the legal authority to cut taxes. The U.S. Constitution specifically allows Congress to settle and collect taxes, so it’s unclear whether an executive order from Trump to reduce or suspend payroll taxes would have any legal merit.
The point is that reducing payroll taxes in some meaningful way is a terrible idea, and we must all hope that this does not happen.