Let’s take a look at Donald Trump’s executive order (actually a memorandum) for a so-called payroll tax holiday. This bit of economic quackery apparently comes from Trump economic advisor Stephen Moore (one of the “trickle down twins” with his twin Arthur Laffer). Trump Sends In the Economic Quacks.
The first thing you should recognize just from common sense is that this does nothing for the unemployed. If you are not gainfully employed and receiving a payroll paycheck, this does nothing for you.
A deferral, not a cut. The payroll tax measure that Trump signed Saturday does not actually reduce the payroll taxes. It defers the due date for the portion of those taxes paid by employees — 6.2% for Social Security and 1.45% for Medicare — through December 31. It applies to workers whose wages are less than $4,000 on a biweekly basis, or about $104,000 a year.
This is similar to Treasury’s deferring the federal income tax due date this year to July 15, from April 15.
The payroll taxes would still be due. They would just have been delayed to the end of the deferment period. Companies may not want to stop withholding the employees’ share of the taxes from their paychecks for that reason.
Note: The Wall Street Journal (paywall) adds, “The president wants employers to stop collecting the 6.2% levy that is the employee share of Social Security taxes for many workers, starting Sept. 1 and going through the end of the year. But his move, announced in a memo Saturday, doesn’t change how much tax employees and employers actually owe. Only Congress can do that.” “Employers’ biggest worry: If they stop withholding taxes without any guarantee that Congress will actually forgive any deferred payments, they could find themselves on the hook. That is a particular risk in cases where employees change jobs and employers can’t withhold more taxes from later paychecks to catch up on missed payments.”
Trump also said that if he’s reelected, he would seek to forgive the levy and make permanent cuts to the payroll taxes. But the power to change tax law lies with Congress, not the White House.
Joan McCarter writes at Daily Kos, Biden seizes on Trump’s attack on Social Security and Medicare, while team Trump panics (excerpt):
“We will be ending that tax, we’ll be terminating that tax,” Trump promises, saying “it’s a big deal for people.” Yes, it will be. Joe Biden and his team understand just how much it matters to people, so they’re running this ad in Florida. “Donald Trump stepped off the golf course,” the narrators says, “and signed an executive action directing funding cuts for Social Security. He also proposed slashing hundreds of billions of dollars from the Social Security trust fund every year, putting your hard-earned benefits in jeopardy.” The background images of Trump on the golf course really make the message hit home. It’s exactly what Trump advisors have been trying desperately to avoid, furiously backpedalling on Trump’s promise to end the programs’ funding.
Treasury Secretary [and Bond villain] Steven Mnuchin, who reportedly opposed Trump’s payroll tax suspension order, insisted on Fox News that a Trump administration would make sure that the funds were replaced from the Treasury general fund, and that Trump “in no way wants to harm those trust funds, so they’d be reimbursed just as they always have in the past when we’ve done these types of things.“
But he also said that if Trump is reelected, he’d “push through legislation“ to make sure that the suspension of payroll taxes would be permanent, “so in essence, it will turn into a payroll tax cut.” Which means that Social Security and Medicare would eventually end up having to be funded out of the Treasury permanently, which spells the end of Social Security.
Even Larry Kudlow, Trump’s favorite quack economist, recognizes the political quicksand he’s dumped Trump into. He told CNN’s Dana Bash that Trump “will protect Social Security and Medicare” and said that Trump never said anything about making this tax cut permanent. “When he referred to ‘permanent,’ I think what he was saying is that the deferral of the payroll tax to the end of the year will be made permanent,” Kudlow said. “It will be forgiven. The tax is not going to go away.” He said that on Sunday, after Trump had already made his promise to make the cut permanent. A promise Trump reiterated on Monday. “We’ll be terminating that tax,” Trump said.
Somehow the promise from Trump to defund Social Security and Medicare rings truer than the promises he’s made since 2015 to “save” the programs. After all, now that he has the chance to act on it, he’s made his intentions perfectly clear.
Economics professor Paul Krugman adds, Trump Sends In the Economic Quacks (excerpt):
No reputable economist I know considers a payroll tax cut a good idea. Even if the money went to workers, which it almost certainly wouldn’t, it would go to precisely the wrong ones — workers who haven’t lost their jobs in the pandemic, not those who have. It wouldn’t encourage hiring, because what’s holding employers back isn’t cost, it’s the shutdown of activities with a high risk of infection (like indoor dining).
Now, lots of bad economic ideas — like giant tax cuts for the rich — nonetheless have strong political support. But a payroll tax cut isn’t one of them. In fact, Senate Republicans have been dismissive, dropping the idea from their proposals.
Yet there it is, the apparent centerpiece of Trump’s new plan. What’s going on?
The answer is that a payroll tax cut is the hydroxychloroquine of economic policy. It’s a quack remedy that somehow caught Trump’s eye, which he won’t give up because sycophants keep telling him he’s infallible. There may be some ulterior motives — this move might end up undermining the finances of Social Security and Medicare — but that’s all secondary. Basically this is a tantrum from a president temperamentally incapable of owning up to his own mistakes.
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Just to be clear, Trump isn’t actually cutting the payroll tax, which would require legislation. Instead, he’s just deferring its collection; workers will still owe the money a few months later. And knowing this, many if not most employers won’t increase paychecks, they’ll just put the money in escrow on workers’ behalf. As far as most workers are concerned, this whole thing may be a nonevent.
But maybe, just maybe, Trump will both win in November and find a way to retroactively cancel those tax obligations. If so, he’ll tear a big hole in the finances of Social Security and Medicare, programs that, whatever he may say, he has always wanted to kill.
Krugman warns: “Unless very quick action is taken, consumer spending is about to collapse, bringing the whole economy down with it.” Coming Next: The Greater Recession.
I would quibble with his characterization. We are already at depression-level numbers. I agree with the Washington Post’s Robert Samuelson: Let’s call it what it is. We’re in a Pandemic Depression.
This stupid carnival barker con man and grifter is pushing the country into an economic depression.