Trump's Fake Payroll Tax Cut Is A Big Mess

Arthur Delaney
·2-min read

In August, President Donald Trump took unilateral action to help the economy weather the coronavirus pandemic by putting more money in people’s pockets: The government would take less money out of every paycheck by deferring payroll taxes, essentially giving everyone a raise.

Trump has loved the idea of juicing the economy with a payroll tax cut, just like his predecessor Barack Obama did from 2011 through 2012. Congress wouldn’t go along with Trump’s proposal, however, so the president did it himself.

But there was a catch with Trump’s plan ― the money would have to be paid back next year, meaning it’s not a tax cut so much as a deferral.

Most private employers appear to have opted out of the scheme, citing its administrative difficulty, and so did the U.S. Postal Service. But Trump decided to force it on his own workers — more than amillion employees of the federal government.

Now, those civil servants must deal with the headaches of a loan they never asked for.

The tax deferral applies to the employee’s share of Social Security taxes, amounting to 6.2% of wages, which for most workers is withheld by their employer. The executive action increases their biweekly paychecks from September to the end of the year. But unless Congress and the White House forgive those loans through legislation, workers will have to return the money through payments or higher withholdings — and smaller-than-usual paychecks — in 2021.

This hardly registers given the pandemic and everything else that is buffeting the economy. Economist Mark Zandi

Personal Finance for Dummies would advise a worker to figure out how much extra money they’re receiving now and set it aside under the assumption that Uncle Sam will expect it back in a few months. Not only does that discipline create some annoying administrative tasks, it defeats the shaky justification for the policy: to pump stimulus into the economy.

Michael Knowles, an employee in the U.S...

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