Trump’s Payroll Tax Deferral Could Be Campaign Trail Problem

Democrats see an opening to exploit in President Donald Trump’s high-stakes political gamble to defer payroll taxes for 2020.

Trump opted for the deferral, via executive order, after his push for a payroll tax holiday was met with little enthusiasm and his negotiators remained gridlocked with Democrats over another aid package. But Trump’s statements that he would forgive the deferred taxes, and possibly cut payroll taxes in the future, open him to attacks that he would cut a program that uses those taxes as a funding source: Social Security.

The deferral has proved unpopular among private companies, and even on Capitol Hill—both chambers and the U.S. Supreme Court have now opted out of implementing it for their workers. If he fails to secure funding to cover the shortfall, it could hurt his relationships with seniors, a valuable voting demographic.

Bob Ward, cofounder of the Republican polling firm Fabrizio Ward, said during a call to promote AARP-sponsored polls that he’s seeing a “perfect storm” of personal and political factors increase voters’ concerns about Social Security.

“I’ve seen it grow on the Republican side as an issue,” Ward said. “Most of these older voters derive all or most of their income from Social Security.”

Early Warning Signs for Trump

Democratic presidential nominee Joe Biden’s campaign has already begun an advertising offensive hitting Trump for the deferral, leaving out Trump’s proposal to make up the difference in Social Security’s funding. In total Biden’s campaign has spent nearly $2.5 million on Social Security attack ads in swing states since Trump’s order in August. After an initial focus on Florida the Biden campaign widened out the attack angle to other swing states in early September.

The advocacy group AARP, a vocal opponent to changes to Social Security and Medicare, hired Republican and Democratic polling firms to see how Trump’s move might impact his standing in 2020 battleground states.

The surveys, conducted Aug. 30 to Sept. 5, show an increased number of older Republicans attuned to Social Security than in previous election cycles. The pollsters also found Trump hemorrhaging support he had from seniors in 2016 due to a variety of factors, including his handling of the coronavirus crisis. But concern over Social Security grew this year, the pollsters argued, because the current crisis exacerbated already-present economic anxiety among retired voters.

“Almost half of voters in these states arevery worried about a cut to Social Security happening over the next year,” said Amy Levin, a pollster with the Democratic firm Benenson Strategy Group, who also spoke on the AARP call.

Congressional Maneuvering

Trump’s deferral applies only to employees whose wages and compensation are generally less than $4,000 per biweekly pay period.

The administration has promised to forgive the deferred taxes and make up the difference for Social Security through revenues from the federal government’s general fund.

Congressional Republicans in both chambers have already introduced legislation (H.R. 8201) to make Trump’s payroll tax holiday, Social Security repayment two-step happen.

The House sponsor of that legislation, Ways and Means Committee ranking member Kevin Brady (R-Texas), told Bloomberg Tax that he hopes the holiday is included in any future stimulus package. But, negotiations on such a package are currently stalled, and Trump has sent mixed messages about how much to prioritize a payroll tax holiday.

And, the price tag could compete with other priorities of additional small-business loans, increased unemployment insurance, and emergency funds to state and local governments.

Forgiveness of the taxes for the period between Sept. 1 and Dec. 31 of this year would cost $137 billion, according to the Joint Committee on Taxation—a large sum of money considering that Senate Republicans have tried to keep the cost of new aid closer to $1 trillion, meaning it would compete with already established priorities.

White House Chief of Staff Mark Meadows recently floated a $1.5 trillion top-line number for another aid package, although it isn’t clear if replenishing Social Security and forgiving the deferred taxes is included. The White House declined to comment.

‘Political Talking Point’

The deferral may also be challenged by Senate Democrats, who were told earlier this week by the Government Accountability Office that the IRS guidance on the deferral is subject to the Congressional Review Act. The CRA allows Congress to void rules from federal agencies using expedited Senate floor procedures, which Democrats can use to force a vote without the blessing of Senate Majority Leader Mitch McConnell (R-Ky.), who controls the chamber’s floor agenda.

Though the vote would likely fail, it might put some Republicans in a difficult position: vote against Trump’s economic aid priority or be accused of attacking Social Security.

“Donald Trump is playing games with Social Security just to give himself a political talking point,” Senate Finance Committee ranking member Ron Wyden (D-Ore.) said in a statement after the GAO’s memo.

Levin predicted that would be a theme down the stretch.

“I think you will be hearing the attack a fair bit at the congressional, Senate, and presidential level,” she said.