As Congress debates a fifth aid package, the one thing both parties immediately agree on is they do not want that. Why? As Trump frames it, it sounds helpful: More money in Americans’ pockets to help lift up a dramatically recessed economy. “I think, frankly, it’s simple,” Trump said in late April. "It’s not the big distribution, and it would really be an incentive for people to come back to work and for employers to hire.”
But Congress says it is an expensive, unrealistic effort that could paper over the real economic struggles that the coronavirus has wrought. Here’s why Trump has not gotten a payroll-tax cut on the books yet and probably will not in this round of legislation:
Any tax break on paychecks would come out of the Social Security fund: That would risk seriously denting it or even depleting it.
Congress’s first major legislation included a two-year delay for employers to pay their payroll taxes, but the ding to safety net programs was negligible because employees pay most of those taxes, according to the independent Tax Foundation. That’s as far as Congress seemed willing to go.
That is the primary reason Republicans oppose a cut, said a senior Republican Senate aide. The chairman of the Senate Finance Committee, Sen. Charles E. Grassley (R-Iowa), indicated Tuesday that it could hurt Republicans. He worried “that the tax cut could drain retirement funds or leave older Americans with the view that Congress doesn’t take ‘seriously’ the plight of the Social Security Trust Fund,” reports Politico’s Burgess Everett.
It is super expensive: Eliminating the payroll tax for both employees and employers would cost the government about $90 billion a month, aides in Congress estimated. Multiply that over the entire year and you’re looking at about $1 trillion in lost government revenue.
The New York Times’ Jim Tankersley put that in perspective back in March: That’s more than the 2008 Wall Street bailout or the 2009 stimulus bill to prop up the economy after the crash that ignited the Great Recession. Democrats in Congress need that money to help fund their proposal to give struggling state and local government $1 trillion in aid.
It would not help the 30 million Americans who have filed for unemployment since this crisis began. And when America does reopen and get back to work, a payroll tax cut will not help shift workers or those who rely on tips, said Sen. Ron Wyden (D-Ore.), the top Democrat on the Senate Finance Committee, in March. That is because most of their money does not come from paychecks.
Here’s how Senate Minority Leader Charles E. Schumer (D-N.Y.) described the idea of a payroll-tax cut in March: “We don’t think they should just throw money out of an airplane and hope some of it lands on the people who are affected.”
Republicans are not quite as vocal about their opposition to this, given their reluctance to upset Trump. But as the Republican-controlled Senate returned to Washington, D.C., this week, they have made clear this is not something they are seriously considering, no matter how much Trump tweets about it.
“I think some of the things that we are currently doing are having a bigger impact,” said Senate Majority Whip John Thune (R-S.D.), the No. 2 Senate Republican, on Monday.
When reporters asked Senate Majority Leader Mitch McConnell (R-Ky.) about the payroll tax cut, he all but ignored it, saying: “If there’s any red line, it’s on litigation.”
This post has been updated.