The White House is pushing for a payroll tax cut to cushion the economic impact of the coronavirus pandemic.
With the stock market losing ground at a record-setting pace, event cancellations carrying into spring and businesses around the country soon to be feeling the trickle-down effect of the coronavirus pandemic, President Donald Trump has addressed the country several times over the past few days pledging to assist soon-to-be-struggling enterprises.
And while at the time of this writing, an official aid package had yet to be passed and sent to the President’s desk for his signature, it’s a safe bet that a substantial stimulus package will soon be on its way to help everyone get by as we endure what we hope to be a temporary setback.
One of the ideas that the President has tossed around to date involves slashing payroll tax. Lawmakers appear lukewarm over this proposal, but we thought it would be worthwhile to take a closer look at just what a payroll tax reduction would mean for Americans should something like this go into effect.
The goal of cutting payroll taxes would be to pass the savings in doing so on to the American worker, hence resulting in larger paychecks. Payroll taxes typically go to fund government programs, such as Social Security and Medicare. Though what workers pay toward a payroll tax is based on what they earn, it’s often 6.2 percent up to $137,7000 and a 1.45 percent Medicare tax. Employers match what employees give out of their paychecks toward the program. If you’re self-employed or make more than $200,000 per year as an individual or $250,000 filing jointly, the percentage you pay will increase as it stands now.
So what would a payroll tax do, exactly? Ideally, it would boost the economy by putting more money into each worker’s paycheck as well as help out employers too. But experts say this may not be the best long-term strategy, as the savings that are yielded aren’t nearly as significant as you’d expect them to be.
For example, experts say if $10,000 became exempt from payroll taxes, workers would just gain an extra $700 in many cases. What’s more is that the lack of a revenue stream going toward government programs like Social Security and Medicare — programs that are already facing shortages — would likely only make the problem more dire. And furthermore, a payroll tax cut would likely also only be temporary — similar to what President Barack Obama did in 2011 and 2012 to help stimulate the economy — and there’s a greater likelihood that future generations would be on the hook paying an even greater payroll tax to help make up the difference down the road.
In short, a payroll tax might not be the best idea on its own, but it could help provide temporary relief just so long as both employers and employees were made aware that it was just that — temporary.