Trump’s Proposed Payroll Tax Cut May Look Good on the Surface–But…

Who doesn’t want to pay lower taxes?

Of all the concerns voters have, the amount they pay in taxes seems to be the most prevalent complaint.

So when Donald Trump signed a memorandum last week suspending payroll taxes, he was actually showing some compassion toward average working Americans, right?

Well…it’s complicated.

First, we need to understand what the payroll tax is.

According to Investopedia:

“A payroll tax is a tax withheld from an employee’s salary by an employer who remits it to the government on their behalf. The tax is based on wages, salaries, and tips paid to employees. Payroll taxes are deducted directly from the employee’s earnings and paid directly to the Internal Revenue Service (IRS) by the employer. In the United States, payroll taxes are divided into three main categories: Federal income, Medicare, and Social Security. The government also collects money for federal unemployment programs.”

Those three main categories–federal income, Medicare, and Social Security–are crucial.

Although imperfect, and the victims of forty years of libertarian incursion, these are social safety nets into which we pay so they are there when we eventually need them.

Funding them through payroll relieves Congress from having to negotiate their appropriation each year.

Social Security is essentially “old-age insurance” created from the ashes of the Republican Great Depression of 1929, one of Franklin Roosevelt’s myriad New Deal initiatives.

But it isn’t just for senior citizens.

Social Security Disability Insurance (SSDI) provides 8.9 million disabled workers with benefits.

4.3 million children also depend upon it.

According to the organization Social Security Works:

“About one in three Social Security beneficiaries are receiving disability or survivor benefits.

“Social Security is by far the nation’s most important life insurance policy, providing benefits to older persons (i.e., widow and widowers) whose spouse has died, to many younger spouses caring for dependent children, and to children whose parent has died. Social Security’s protections are estimated to have a present value of $612,000 in life insurance and $631,000 in disability insurance for a married worker who has average earnings and two children under 5 years old.”

It adds:

“Social Security works for all Americans, and it has never been more important to our economic security:

      • Sixty-one million depend on Social Security–more than 1 out of every 6 Americans.
      • Just over 3 in 5 seniors depend on Social Security for most of their income.
      • One-third of seniors rely on it for at virtually all (90% or more) of their income.
      • Social Security’s benefits are modest, but vital, averaging around $15,000 per year.
      • Social Security lifts 22.1 million Americans out of poverty. Without it, the poverty rate of our seniors would be nearly 41%; instead it is just under 9%.
      • It is an extremely efficient program, with administrative costs of less than a penny on the dollar.”

Those who make more than $137,700 per year, however, are exempt from further contributions.

Some, most notably, Vt. Sen. Bernie Sanders, have called for lifting that cap–or at least raising it–so we increase the $2.9 trillion surplus to make it solvent into perpetuity.

To add to the Social Security Trust Fund value, capital held within the fund is invested in interest-bearing federal securities, also known as Treasury bonds, the government’s full faith and credit guarantee.

Image credit: Tax Policy Center via Mother Jones

Trump proposed, beginning next month, the Treasury Department stop collecting the 6.2% payroll tax from workers who earn up to $104,000 annually, through the end of the year.

But the IRS needs to inform companies about who is eligible for the temporary cut and how to keep track so the taxes can eventually be repaid.

Yes, they need to be repaid.

Taxpayers are not off the hook.

They will owe that money.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, asked:

“What good does that do people if they just get a temporary payroll tax cut and have to put that somewhere to save it to repay the money in a balloon payment a couple of months from now? That’s really done very little to improve the economy.”

The money workers are not going to be contributing to their own earned-income benefits will have to be funded through the income tax-generated general fund, as is the Pentagon along with everything else, which means it too would have to be negotiated every year.

Pete Isberg, vice president of government relations for payroll company ADP, explained:

“It’s going to be a mixed bag of employers. Some will be able to do it in October or November. And some may just never do it.”

But with the COVID-19 pandemic shuttering businesses and hobbling an already precarious economy, betting Social Security’s future on income taxes seems a little illogical.

Bob Cesca wrote in Salon:

“Deferring the payments to January will only sucker-punch taxpayers just when things should be ramping up again economically. Combine this deferral with pandemic-related deferrals on rent, mortgage payments and other debt, plus unsustainable credit card debt that out-of-work Americans are rapidly accumulating, and we’re talking about the potential for a colossal glut of bankruptcies and worsened household debt starting in 2021.” 

Not surprising, Trump appears to be using the payroll tax cut as a re-election ploy, announcing that, if re-elected, it would be permanent.

So we wouldn’t have to pay back all the money if Trump gets another term?

Is he bribing us?

Some on the right like to compare Trump’s payroll tax cut to the one Barack Obama instituted in 2011, which House Speaker Nancy Pelosi extolled.

Yet those were much different circumstances.

For one, even though Obama did it doesn’t mean it was a good idea.

Second, Obama had just spent the past two years pulling the economy back from the fiscal cliff.

We are at the edge of a steeper cliff right now.

Third, even though Obama arguably handed Republicans a tool they could later use to undermine the social program they have wanted to destroy since its passage in the thirties, he wasn’t about to let them blow up the whole thing.

Trump and Senate Republicans under Mitch McConnell’s direction would love nothing more than to see Social Security relegated to just another welfare program at which to chip away.

Should that happen, what would stop them from cutting off payments for people making under the $137,700 per-year cap?

What would stop them from cutting off payments for people making $100,000?

What would stop them from cutting off payments for people making over $50,000?

What would stop them from cutting off payments for people technically above the federal poverty line but still too poor to live?

This is just another attempt to kill government’s obligation to provide for Americans’ general welfare as delineated in the Preamble to The Constitution.

Also in that sacrosanct document is language providing Congress–not the president– authority over federal spending. Trump cannot order any new money spent, yet he can defer costs until the money is eventually paid.

In 2015, while still a presidential candidate, Donald Trump told the conservative Heritage Foundation-affiliated publication The Daily Signal:

“I’m not going to cut Social Security like every other Republican and I’m not going to cut Medicare or Medicaid.”

Like all the other ways he opposed conventional Republican positions when standing amid other GOP wanna-be’s, this was just a ploy to get elected.

The fact it worked indicates how popular Social Security is and how many voters–even Republicans–favor keep it intact.

A tax cut may not seem so bad on the surface.

But the devil, as the saying goes, is in the details.

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