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The Trump administration is pushing for payroll tax cuts in a coronavirus relief package. Here's what a payroll tax cut is, and how it could impact you.
The Trump administration is pushing for payroll tax cuts in a coronavirus relief package. Here's what a payroll tax cut is, and how it could impact you.
Bryan PietschMar 17, 2020, 21:32 IST
The Trump administration has pushed for payroll tax cuts as part of an economic relief package in response to the coronavirus pandemic.
Payroll tax cuts could put more money in the pockets of people with higher salaries who are still getting paid through the crisis.
But, tax cuts would do nothing for people who lost their jobs because of the pandemic and no longer have a paycheck with taxes to cut.
Social Security, which takes out 6.2% of your income up to $132,900.
Medicare, which takes out 1.45% of your income. Married couples filing jointly who make $250,000 or more, and people who make over $200,000, pay an additional 0.9%.
Employers also pay payroll taxes. They pay 6.2% of your income, so the government gets 12.4% of your total income, and they pay 1.45% of your income toward Medicare as well.
How would the payroll tax work?
The Trump administration and Congress have yet to agree on a coronavirus relief package, so the details remain unclear.
But, one of Trump's economic advisers, Stephen Moore, said that payroll taxes could be cut or suspended through the end of the year, according to a report by Politico.
What's the purpose of the payroll tax?
A payroll tax cut could free up more cash for employees and employers. If Social Security and Medicare taxes aren't taken out of paychecks, workers and businesses would take home a little more money with each paycheck.
The idea is that workers benefiting from the cut would spend more money, which could help curb a recession. It could give employers more money, which could reduce the need to lay off employees.
Who will it help?
A payroll tax cut, if enacted for both employees and employers, could give workers more money to spend and businesses more cash as they face a decline in consumer spending through the crisis.
The tax cut would disproportionately give more money to people with higher incomes, who typically have more savings to fall back on during a crisis like the coronavirus pandemic.
A payroll tax cut would also do nothing to help those who lost their jobs because of the crisis, especially lower-income people in industries like tourism, hospitality, and dining that have been especially hit hard by the pandemic and decline in demand from consumers.
Jason Furman, a former economist in the Obama administration, told Business Insider's Joseph Zeballos-Roig that a tax cut would essentially be a "slow drip," rather than an immediate boost that could help curb a recession.
What are the alternatives?
Republican Senator Mitt Romney has proposed that the federal government send each US adult a check for $1,000 to boost spending during the crisis.
A plan from the US House of Representatives aimed to provide paid leave to workers, though it was criticized for leaving out employees from business with 500 or more workers.
