The Washington PostDemocracy Dies in Darkness

Trump’s dubious tax gambit fizzles, as even red states balk

During a news conference in Bedminster, N.J., on Aug. 8, President Trump signed an executive order to let workers postpone their payroll tax payments into 2021. (Video: The Washington Post)

For weeks, President Trump has waited in vain as Congress has failed to reach a deal on coronavirus relief that he hoped would include a payroll tax cut.

So he resorted to what critics derided as a gimmick: He would allow companies to defer payroll taxes through the end of the year, with the promise that the deferred taxes would later be forgiven. He even indicated he would somehow forgive the taxes without congressional authorization, despite that being patently unconstitutional.

The reaction shows how little confidence American businesses — and even some red states — have in Trump’s promise.

No major employer has thus far taken advantage of the deferral, and small businesses are also balking. Even some GOP-run states such as Arizona and Indiana have opted out.

Part of this is because they recognize that it’s essentially a loan. While they wouldn’t have to pay the tax through the end of the year, the regular tax rate would effectively be doubled early in 2021.

“Obviously it’s a delay, and you’d have to pick up in January and pay double,” Indiana Gov. Eric Holcomb (R) said this week. “Understanding that, we made the decision to forgo it.”

Unless! Unless, of course, the payroll taxes would eventually be forgiven. And Trump has sought to reassure people that this would be the case.

“If I’m victorious on November 3rd, I plan to forgive these taxes and make permanent cuts to the payroll tax,” he said Aug. 8.

“When I win the election, I’m going to completely and totally forgive all deferred payroll taxes without in any way, shape or form hurting Social Security,” he added Aug. 12.

After it was noted that eliminating taxes is Congress’s territory, Trump amended his promise on Aug. 17 to include its authorization. “If Republicans win in November, we will forgive these payments in full,” Trump said.

But on Thursday night, with companies and even some Trump-backing states shunning Trump’s offer, he more explicitly suggested he would somehow make it happen unilaterally.

“When we win I, as your President, will totally forgive ALL deferred payroll taxes with money from the General Fund,” Trump said.

What’s particularly remarkable about the lack of buy-in from businesses and even these red states is that, if the deferred payroll taxes were eventually forgiven, they would already have paid them. It’s theoretically possible that Congress could do something to benefit those who still paid the taxes anyway, but Trump’s promise has been to forgive the taxes that were deferred.

In addition, even if everyone eventually gets the same tax break, companies would have forgone a benefit at a particularly crucial time of economic hardship. In other words: There’s very little reason not to defer the taxes if you think they’ll be forgiven at a later date.

Getting companies and states to buy in is also important to Trump’s gambit. If much of the American economy is suddenly faced with a sharply rising tax bill in early 2021, it would put pressure on Congress to do something about it. Without that, there would be less impetus for Congress to act.

Trump’s gamble on this, of course, has always been a thoroughly politically convenient one.

The ostensible idea was that this would help people deal with their immediate economic pain. But whatever stimulus came from the move? It would happen before the November election. And the possible ensuing pain? That would be deferred until either after Trump had already secured another four years in office or when Joe Biden would have to deal with the mess.

And there have always been myriad problems with Trump’s promise.

The first is that he almost definitely can’t do it unilaterally. Mark Mazur, the director of the Tax Policy Center, says it’s not possible. “They would need to pass legislation to accomplish this, which is Congress’s job,” Mazur said.

The second is that, if he thinks he can just do this unilaterally, why not do it now? Why connect this to being reelected? Why allow businesses and the American people to be in this kind of a tax purgatory at a time of such economic pain? That seems … unnecessary at best.

And even if we’re talking about Congress doing what Trump wants, it’s very unlikely that Republicans would take over the House, even if Trump wins, given their 36-seat deficit.

Another is that, even as Trump suggests that taking money from the general fund to forgive payroll taxes wouldn’t harm entitlements such as Social Security and Medicare, it’s not clear how that’s possible.

All of which makes Trump’s promise on this look a whole lot like a political ploy. And whatever it is, it’s not having the effect he would like it to. Trump needed people to believe that he was a man of his word or — at the very least — that his tactic would force Congress’s hand. They’re understandably skeptical.