American workers and the elderly have had the toughest hands in decades this year. The 2019 coronavirus disease (COVID-19) ravaged the U.S. economy, sent the unemployment rate to levels not seen consistently in more than eight decades, and claimed the lives of nearly 160,000 Americans.
It was this turmoil that forced Congress to pass and President Trump to sign the CARES (Coronavirus Aid, Relief, and Economic Security) law on March 27.
The CARES Act hasn’t done much for the average American
the CARES Law is an absolute monster in terms of size. At $ 2.2 trillion, that’s nearly triple the cost of the back-up plan designed to protect banks during the financial crisis. Ultimately, it provided much-needed cash to struggling industries, small businesses, hospitals, and the Unemployment Benefit program – the latter of giving the unemployed an extra $ 600 a week between April 1 and April 30. July.
However, the big draw of the CARES Act was the $ 300 billion earmarked for direct stimulus payments to the public. At their maximum, these economic impact payments could total $ 1,200 for an individual or $ 2,400 for a couple making a joint claim (depending on adjusted gross income), with dependents aged 16 and under adding $ 500 each. what a parent or guardian might receive.
While it has proven useful to throw a load of cash into businesses, it does little to help the average American who has financial difficulties. Three-quarters of stimulus recipients are estimated to have spent their payments in four weeks or less, which doesn’t help when there is no clear end in sight for the COVID-19 pandemic.
With another much-needed stimulus round, it should come as no surprise that Democrats and Republicans have relentlessly negotiated a new deal in recent days. As of the end of Thursday, August 6, no new stimulus deal had been reached.
President Trump’s payroll tax cut proposal finds new life
The problem is that the legislative session of the Senate after the two-week recess on July 4 only lasts three weeks. After Friday August 7, the Senate will be on vacation for a full month. This means that lawmakers (at the time of writing) are driving these negotiations on the fly. Financial help is now needed for many American families, and delaying talks for another month due to the legislative recess could prove disastrous.
This inability of Democrats and Republicans to find sufficient common ground between Act on the HEROES and HEAL Take action is what is allowed Donald Trump’s terrible stimulus proposal to find new life.
As I left the Ohio Oval Office, I informed my staff to continue working on an executive order regarding payroll tax cuts, eviction protections, unemployment extensions, and student loan repayment options.
– Donald J. Trump (@realDonaldTrump) Aug 6, 2020
As some of you may recall, President Trump was adamant, before the Senate returned from vacation on July 20, that he would not sign a new round of stimulus if he did not include a provision to temporarily suspend or reduce payroll taxes – that is, the tax paid by U.S. workers and employers who fund Social Security and Medicare programs.
The idea here is that if the payroll tax were temporarily suspended, the tax liability of workers and / or businesses would decrease. That would do put more money in the pockets of workers and businesses, thus helping to avoid a financial maelstrom.
While the Democratic-led House and Republican-led Senate remain deadlocked on a handful of key stimulus issues, President Trump has threatened to sign an executive order that would expand protections against evictions, improve unemployment benefits, provide student loan borrowers with repayment options, and. .. reduce social charges.
Trump’s stimulus proposal would decimate social security
The concern is that if Trump gets his wish for a payroll tax cut, it would do nothing more than trade very short-term gains for long-term pain. Moreover, it is even questionable whether the short-term gains would be so noticeable.
First of all, lower payroll taxes would only bring an immediate benefit to those who are still working. Arguably, it is the people who have been forced out of the workforce who are most in need of financial assistance. A cut in payroll taxes would do nothing for the tens of millions of unemployed people who are looking from the outside.
But the biggest problem here is that the payroll tax is the main source of Social Security income. Last year, he was responsible for $ 944.5 billion (89%) of the $ 1.06 trillion raised. Reduce or stop this source of income, even for a short time would be disastrous for Social Security, which already faces around $ 16.8 trillion in unfunded bonds between 2035 and 2094, according to the latest Social Security Board report. In all likelihood, a payroll tax holiday of significant duration would bring forward the date on which Social Security should deplete its asset reserves. When these reserves are exhausted, a up to 24% overall reduction in benefits awaits retirees.
Of course, there is a viable legal question as to whether Trump has the legal power to lower taxes. The U.S. Constitution specifically authorizes Congress to impose and collect taxes, so it’s not clear whether a Trump executive order to reduce or suspend payroll taxes would have any legal merit.
The point is, drastically cutting payroll taxes is a terrible idea, and we should all hope that it doesn’t come to fruition.