A big cut in the payroll tax is high on President
Trump has backed a
“I like the idea of payroll tax cuts. I’ve liked that from the beginning,” Trump said Tuesday. “A lot of economists would agree with me. A lot of people agree with me.”
Wide divisions in early talks on
Payroll taxes -- the 6.2% levy on wage income up to $137,700 that finances Social Security -- are paid by the vast majority of American workers. Employers pay an additional 6.2% tax for their employees. Gig economy workers, such as drivers for Uber and Lyft and other contractors, are supposed to pay the employee and employer portions of the tax.
State, Local Aid
Not many lawmakers have publicly backed Trump’s proposal for a payroll tax cut. House Democrats seek more money for struggling state and local governments and a second round of direct payments to individuals. A payroll tax cut isn’t on the list because people without jobs wouldn’t benefit.
Senate Majority Leader
GOP Senate Finance Chairman
House Ways and Means Chairman
Garrett Watson, a senior policy analyst at the right-leaning Tax Foundation, said a payroll tax cut is “not well targeted. With unemployment between 10% to 20% range, those who are unemployed are going to be left out of the relief.”
Effect on Employment
Economic literature also suggests “there isn’t much effect on employment or stimulative demand,” Watson said. “From an economic growth perspective, a payroll tax cut just doesn’t translate to long-term employment numbers.”
Economist and longtime tax-cut proponent
Congress has already addressed some business concerns about paying their payroll taxes while they’re shut down. The March stimulus bill lets them defer paying the employer-side part of the tab for the rest of this year and repay those levies in 2021 and 2022.
Using the payroll tax system to provide further relief to companies does have some appeal in both parties. Senator
Any of those would come with a large price tag that could total well into the hundreds of billions of dollars depending on how many companies would be eligible for the benefit.
Suspending payroll taxes for three months would cost $300 billion, according to the nonpartisan Committee for a Responsible Federal Budget. A negative payroll tax would cost even more.
“A negative tax is effectively another form of welfare payment,” said
McIntosh also said such a move could have big consequences for the Social Security trust fund, a concern shared by more left-leaning economists worried that diverting revenue from it could lead to insolvency problems more quickly than currently predicted. Hawley’s office said his plan would include provisions to replenish the trust fund, as has been done in previous bills.
“I’m worried that this is just furthering a longstanding Republican goal: cutting Social Security and privatizing it,” said
(Updates with details about Hawley, Jayapal plans starting in 14th paragraph)
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