Trump is doubling down on a payroll tax cut that has slim GOP support and would do virtually nothing to help jobless Americans
- Trump is pushing for Congress to enact a payroll tax cut in a bid to boost the economy, a step that lawmakers from both parties rejected in March.
- The president said he may not sign an economic relief bill that doesn't contain the measure.
- But that step has drawn criticism from many economists who say it would do nothing for unemployed Americans no longer drawing a paycheck. GOP support for the measure appears slim.
As signs of a rapid economic recovery fade, President Donald Trump is demanding a measure he had sought in March but that was rejected then by lawmakers of both parties: a payroll tax cut.
In a Fox News interview that aired Sunday, Trump doubled down on the tax break and signaled he may not sign the legislation Congress eventually sends to his desk if the measure is not included.
"I would consider not signing it if we don't have a payroll tax cut," Trump said. He added, "A lot of Republicans like it."
Indeed, some of the president's conservative allies say they support the move. Sen. Ted Cruz of Texas and Stephen Moore, a White House economic adviser, told Business Insider in statements in late May that a payroll tax cut would benefit the economy.
"Not only would this alleviate the employers' burden of paying back deferred taxes over the next two years, but it would also give employees a de facto wage hike, putting more money into Americans' pockets," Cruz said at the time.
Moore called it "the biggest job creator."
Payroll taxes are the 7.65% of earnings taken out of employee paychecks and the 7.65% that's levied on employers to fund the Social Security and Medicare trust funds. President Barack Obama trimmed the tax by 2% for workers for two years starting in 2011.
The idea for such cuts is to juice paychecks, putting more money into people's pockets to increase their spending during downturns.
The Trump administration is seeking a full payroll tax holiday for both workers and employers, The Wall Street Journal reported. Meanwhile, the GOP is hoping to cap the legislation's cost at $1 trillion.
Scrapping the entire payroll tax from April to December would have swelled the federal deficit by $840 billion, according to a March estimate from the Committee for a Responsible Federal Budget, a nonpartisan think tank.
'It's not even the hundredth-best solution'
The proposal, however, has sparked significant criticism from many economists who say it would mostly benefit people still drawing paychecks and not 20 million jobless Americans.
"A payroll tax cut is exceptionally ill-suited for the current moment," Seth Hanlon, a tax-policy expert and senior fellow at the left-leaning Center for American Progress, told Business Insider. "It's not a second-best solution. It's not even the hundredth-best solution."
He added: "It's a policy that's designed to benefit people who are working. It benefits people who are earning more, and it doesn't do anything for people out of work."
A disproportionate share of the aid would go toward the wealthier segment of Americans. The Institute on Taxation and Economic Policy found that 65% of the benefits would be drawn by the richest 20% of taxpayers.
Hanlon also said Congress already authorized a deferral in employer payroll taxes for two years under the Coronavirus Aid, Relief, and Economic Security Act. But firms are unlikely to expand operations because of reduced demand, nor are they likely to significantly boost their hiring given the uncertain economic conditions stemming from the pandemic.
Michael Strain, an economist at the right-leaning American Enterprise Institute, outlined in a March Bloomberg op-ed other drawbacks to the policy:
- It would arrive "drip by drip" in each paycheck and not provide a sizable injection of cash quickly enough for households grappling with financial calamity.
- It would also not effectively target aid toward low-income workers.
Democrats didn't include a payroll tax cut in the relief bill they passed in the House in May, which has languished in the GOP-controlled upper chamber. Senate Republicans, however, also don't appear as enthusiastic as Trump about cutting payroll taxes.
"I have not talked to a single office that has expressed enthusiasm for a payroll tax cut," Brian Riedl, a tax expert at the right-leaning Manhattan Institute, recently told The Washington Post.