Trump is enacting a payroll-tax holiday through executive action. But that doesn't mean workers will see extra money in their paychecks.
- President Donald Trump moved on Saturday to enact a payroll-tax cut on his own, circumventing
- The idea gained traction in the White House after two conservative economists called on the president to use executive authority to suspend that tax collection and add money to workers' paychecks.
- But experts say employers are likely to hoard the cash, since the president only has the authority to defer tax collection — not to forgive it.
- "Knowing that, employers would be taking an enormous risk if they don't withhold the tax they're legally liable for," tax expert Seth Hanlon told Business Insider.
President Donald Trump signed an executive action on Saturday to delay the collection of
The text of the memorandum says that people earning under $4,000 every two weeks — or under $104,000 yearly — won't have to pay the tax out of their paychecks from September 1 to December 31.It may set the stage for a clash with lawmakers from both parties, given Congress dismissed the measure in past stimulus proposals. And many economists say it would not be effective in helping millions of unemployed people.
With stimulus negotiations at a standstill, the idea gained traction in the White House after a pair of conservative economists, Stephen Moore and Phil Kerpen, called on Trump in a Wall Street Journal op-ed last weekend to "declare a national economic emergency." They said he should order the IRS to stop collecting payroll taxes from employees' paychecks."Voters would instantly see the 7.5% boost to their paychecks," they wrote.
How the payroll tax worksThe federal government imposes a 15.3% levy on wages known as the payroll tax. It's evenly divided between employers and workers at 7.65%, and most of it goes to fund Social Security. It also helps to finance Medicare. Trump's memorandum seeks to postpone the 6.2% portion every worker has taken out of their paycheck for Social Security.
Experts say it's not as straightforward as the conservative economists had laid out. The tax code allows the Treasury Department to postpone tax deadlines for up to a year only during a national disaster, Daniel Hemel, a tax-law professor at the University of Chicago, wrote on Twitter.
"There's no deadline that can be delayed in order to achieve" the paycheck boost that Moore and Kerpen outlined, Hemel said.That's because of the executive branch's jurisdiction over taxes. While Trump has the authority to order the IRS to stop collecting those taxes from people's paychecks, the president can't wipe away tax bills on his own; it requires Congress to step in.
So even with an executive order suspending payroll taxes, companies are still required to make those payments in the future — unless Congress passes legislation letting employers off the hook.
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Experts think companies will just hoard the cash instead of turning it over to workersSeth Hanlon, a tax expert at the left-leaning Center for American Progress, told Business Insider it's unlikely that employers would turn that cash over to workers, because of a fear of footing the bill when it's due.
An executive action, economists say, could amplify the shortfalls of a payroll-tax cut in combating the pandemic-induced recession."The EO would take the negative aspects of a
Republican lawmakers don't appear to be as enthusiastic as Trump about a payroll-tax cut through executive action. They left it out of their $1 trillion stimulus plan and included another round of stimulus checks instead."The point is, what does the law allow?" Sen. Chuck Grassley, the chair of the Senate Finance Committee, said on Monday. "The only tax policy that is really any good is long-term tax policy." Read more: Investors are piling into socially responsible ETFs at an unprecedented rate — and Morgan Stanley says these 4 stocks are best-positioned to profit from the trend
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