How Payroll Tax Suspension Helps 140 Million Workers
President Trump recently delivered on our recommendation to suspend the payroll tax. His executive order defers payroll tax obligations for employees earning less than $104,000 (about 90 percent of all American workers). Combined with the employer payroll tax relief in the CARES Act, which passed by a strong bipartisan vote, the president's order will provide meaningful tax relief to nearly all working Americans. This tax cut will significantly boost the economy and accelerate its recovery.
Now employers from Wall Street to Main Street must act to comply with this executive order and suspend employee payroll tax withholding to boost their workers' net pay. The president can help make employers comply by issuing directives to the Treasury and IRS to instruct businesses that they are prohibited from withholding payroll taxes from workers' paychecks through year-end and that they will not be held legally liable for collecting suspended payroll taxes paid to employees. These directives can turn the tax deferral into a de facto tax cut. Ultimately, employers, employees, and voters who want a vibrant small business-led economic recovery should vote to make this tax relief permanent on Election Day.
For most employees, the payroll tax is the biggest tax burden they face. Suspending it will eliminate one of their most significant paycheck expenses, leaving them better able to pay their bills and other expenses. The Committee for a Responsible Federal Budget estimates that Trump's tax deferral may put $100 billion worth of extra pay back in the pockets of U.S. workers through year-end. With these additional funds circulating in the economy -- in the form of local consumption and investment -- jobs and opportunity will be created.
This return to work incentive will help employers as much as it helps employees. It rewards employees for returning to work with what amounts to a net pay increase of six percent. This additional take-home pay will make work more attractive for those earning supplemental unemployment benefits that paid most recipients more to stay home than return to work, helping small businesses rehire as the economy reopens. The money goes straight to Main Street USA in every town in America. (President Trump also signed an executive order to extend federal unemployment benefits but at a lower rate to make resuming work more attractive.)
Congressional Democrats, Joe Biden, and their media allies are criticizing the tax deferral for its supposed fiscal impact on Social Security. Biden called the move "a reckless war on Social Security." These are crocodile tears to mask getting outmaneuvered politically. Note that none of these politicians, including Biden and Pelosi, complained when the Obama administration cut payroll taxes to accelerate the economic recovery after the Great Recession. That's because the Treasury can and will supplement the Social Security fund as it did under Obama. Biden must explain why this tax relief that he pursued as part of the Obama administration is somehow now "reckless."
President Trump has acted boldly and independently because the do-nothing Pelosi Congress can't do its job. Americans want action, not partisan bickering.
Now it's time for employers to step up. Some employers claim that they can't update their payroll systems by the Sep. 1st start date. (Trump has said he's considering backdating the deferral to Aug. 1st.) Other businesses are considering continuing to withhold the taxes because they're worried about the tax liability associated with having to pay in a lump sum in the future. These are excuses. Employers from the crab shack to the corner offices owe it to their employees to follow the executive order's spirit and provide them with this deferral to help them get back on their feet.
Congress could also help by clearing up any ambiguity and passing a law to make this payroll tax deferral an actual tax cut.
That would be a real stimulus that rewards roughly 140 million American workers and millions of often financially-strapped small business employers. Who could be against a tax cut that helps the working class and small businesses?