Business
Trump Wants Payroll Tax Cut, What That Means For You
The next stimulus bill proposal is expected to be released as early as this week. With this, one of the major battleground items in the bill will be a payroll tax cut.
As we mentioned on Friday, National Economic Council chief Larry Kudlow wants a payroll tax cut included to help spur economic growth. Kudlow views the tax cut as a wage subsidy the government would give to employers. These employers would, in turn, pass it on to their employees.
Treasury Secretary Steve Mnuchin would rather send another stimulus check. He believes that the Democrat-led House would never approve a payroll tax.
Yesterday, President Trump raised the stakes by saying that he would consider not signing the next stimulus bill if it doesn’t include a payroll tax cut.
“I want to see it,” Trump said during an interview with Fox News. “I'll have to see but, yeah, I would consider not signing it if we don't have a payroll tax cut, yes.”
So what is a payroll tax cut, and how would it benefit the average American?
What Is A Payroll Tax Cut
For working Americans, 7.65% of your earnings are subtracted from each paycheck to help pay for Social Security and Medicare (6.2% goes to Social Security; 1.45% goes to Medicare). Your employer also pays an equal amount of taxes.
The Social Security tax is only collected on the first $137,700 of earnings; however, if you earn more than $200,000 per year, an additional 0.9% Medicare tax is collected on wages over $200,000.
What hasn’t been determined yet is if President Trump is insisting on a 100% tax cut or a smaller percentage. Let’s assume it’s a 100% payroll tax cut. For someone making $25 per hour and working a standard 40 hour work week, the savings would be $76.50 per week. This goes for a little more than $300 per month.
It’s also unclear how long the tax cut would last. In previous comments, President Trump mentioned extending the tax cut through November or possibly the remainder of the year.
The goal of the tax cut would be to allow workers to keep more of their wages in each paycheck. This would give them more money to spend and help boost the economy. Critics say that the money wouldn’t get into the economy quickly enough with a tax cut. Instead, like Treasury Secretary Mnuchin, they prefer to send out stimulus checks that are available for immediate spending.
Reservations
The other knock against a payroll tax cut is that it does nothing for those who aren’t collecting a paycheck, i.e. the tens of millions of unemployed Americans.
There is also concern about diverting money – at least temporarily – away from the chronically under-funded Social Security and Medicare programs. While the thought is to simply close the funding hole at a later date, there’s no framework in place to ensure that will occur.
We should know additional details of the plan this week when the proposal is released and we hear more from President Trump.
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