Finance

Trump payroll-tax cut push creates new headache for Republicans

President Trump is renewing his push for a payroll-tax cut to be part of the next coronavirus relief package, adding a wrinkle to forthcoming negotiations.

Trump over the past week has stressed that payroll-tax relief is one of his top legislative priorities. But lawmakers on both sides of the aisle aren’t enthusiastic about the idea, while many economists argue it might not be an effective way to provide relief to U.S. households during the coronavirus pandemic.

During remarks in the Oval Office on Monday, Trump said a payroll-tax cut is “very important.” He also called it a win-win situation for workers and employers.

“It’s a big saving for the people,” he said. “It’s a tremendous saving, and I think it’s an incentive for companies to hire their workers back and to keep their workers.”

Trump added that the tax cut is one of many elements that Congress and the administration are discussing as they start to hash out what’s expected to be the last COVID-19 relief bill before Election Day.

In an interview with Fox News that aired on Sunday, Trump told Chris Wallace that he might not sign a relief package into law if it doesn’t include his desired tax cut.

“I’ll have to see, but yeah, I would consider not signing it if we don’t have a payroll-tax cut,” Trump said.

Discussions about the next coronavirus relief bill are expected to ramp up this week, as lawmakers return to Washington following a two-week July 4 recess.

Treasury Secretary Steven Mnuchin and White House chief of staff Mark Meadows plan to meet with Senate Republicans on Tuesday to discuss their plan.

Senate Majority Leader Mitch McConnell (R-Ky.) said Monday afternoon that GOP senators “will be putting forward a strong starting point for additional recovery legislation hopefully as soon as this week.”

Lawmakers and the administration are under pressure to act quickly. Enhanced unemployment benefits are set to expire at the end of the month, and legislating will become almost exponentially harder as November’s elections draw near.

Trump has been pushing for a payroll-tax cut throughout the pandemic, but has fallen short in each previous relief package.

A $2.2 trillion coronavirus relief law that Trump enacted on March 27 included payroll-tax relief for employers, but not for employees. That law allows employers to defer paying their share of the Social Security payroll tax, and it creates a refundable payroll-tax credit for certain wages businesses pay their employees.

Employees and employers each pay Social Security payroll taxes of 6.2 percent of wages and pay Medicare payroll taxes of 1.45 percent.

With lawmakers and the administration turning their attention to an additional coronavirus relief measure, Trump is reemphasizing a payroll-tax cut, including for employees.

But the idea still faces criticism from some top GOP lawmakers, including Senate Finance Committee Chairman Chuck Grassley (Iowa), who said Monday a payroll-tax cut would create “a public relations problem” because it would be perceived as harming the Social Security trust fund.

Sen. John Cornyn (R-Texas), an adviser to McConnell, warned that a payroll-tax cut would be “problematic.”

“I think it’s problematic, because obviously the trust funds for Social Security and Medicare are already on their way to insolvency,” Cornyn said. “I’m not a fan.”

Additionally, any coronavirus package will need bipartisan support to become law, and Democrats continue to be opposed to the payroll-tax cut idea. They point out that such a move would not provide relief for the millions of Americans who are unemployed.

“A payroll tax cut doesn’t help those who aren’t on a payroll,” Sen. Kamala Harris (D-Calif.) tweeted Monday.

Trump’s push has the backing of some Republican lawmakers, as well as well-known conservatives such as Stephen Moore, who advised the president’s 2016 campaign. They argue that it would help to encourage people to return to work.

In an encouraging sign for Trump, House Minority Leader Kevin McCarthy (R-Calif.) told reporters on Monday that a payroll-tax cut would be a part of Republicans’ proposal.

Moore said he thinks Republicans are “really rallying around this idea.”

However, a number of economic policy experts across the ideological spectrum argue that a payroll-tax cut would not be the best way to help people in need.

“There’s much more effective things that can and should be done,” said Kris Cox, a senior tax policy analyst at the left-leaning Center on Budget and Policy Priorities. She said better options include enhanced unemployment insurance, expanding the Supplemental Nutrition Assistance Program and providing fiscal relief to states.

Douglas Holtz-Eakin, president of the right-leaning American Action Forum, said a payroll tax holiday through the end of the year wouldn’t do much to increase hiring because hiring is a longer-term decision.

Kyle Pomerleau, a resident fellow at the right-leaning American Enterprise Institute, said a payroll tax cut would “undermine the Social Security trust fund and the Medicare trust fund.” He noted that the federal government can transfer money from the general fund to the trust funds but said that such a move is bad fiscal policy because “it breaks the link between the tax and the benefit.”

Since the passage of his 2017 tax-cut law, Trump has been interested in passing additional tax cuts. The 2017 law didn’t win over most voters, and the president is now stepping up his economic attacks on presumptive Democratic presidential nominee Joe Biden.

When asked about Trump’s plans for further tax cuts in a press call last week hosted by the president’s campaign, Vice President Pence mentioned the president’s interest in a payroll-tax cut.

“A payroll-tax cut would put money in the pockets of working Americans,” Pence said.

Whether a payroll-tax cut is included in the next package may depend on a number of factors, including how other contentious issues are resolved.

Marc Gerson, a former congressional tax aide who now leads the government affairs practice at Miller & Chevalier, said the amount of tax relief in the bill may depend on the overall size of the package and how the measure deals with other issues, such as unemployment insurance, aid to state and local governments and liability protection for businesses.

“A payroll-tax cut, even if it’s only on the employee side, could potentially be extremely expensive,” he said.

Juliegrace Brufke and Jordain Carney contributed.

Tags Chris Wallace Chuck Grassley Coronavirus Donald Trump economy Joe Biden John Cornyn Kevin McCarthy Mark Meadows Mitch McConnell payroll tax relief bill Stephen Moore Steven Mnuchin Tax cut

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