Trump has said he hopes to “terminate” the tax, which funds Social Security and Medicare, so workers see a boost to their weekly checks and aren’t required to pay it back later. But absolving Americans of these debts requires an act of Congress, something lawmakers from both parties have been reluctant to do.
Absent that, the Treasury Department’s guidance instead paves the way for employers to recoup the taxes deferred under Trump’s order from their employees’ pay, though it’s unclear what would happen if workers left their jobs or the firm no longer had the ability to deduct money out of their wages.
The administration’s guidance perplexed tax experts, who said it could frustrate workers and add to the burden facing businesses, which may be deterred from implementing Trump’s order at all. Last week, automakers, restaurateurs, retailers and a torrent of top employers signaled that possibility, when they joined with the U.S. Chamber of Commerce in calling the president’s plan “unworkable.” Their opposition means that many workers may see no change to their pay — and the economy may see few of the gains Trump has touted.
“While the Chamber appreciates the promulgation of guidance confirming the optionality previously suggested by Secretary [Steven] Mnuchin, we are concerned that many critical questions remain unanswered, making implementation a continuing challenge,” Caroline Harris, the vice president of tax policy at the Chamber, said in a statement Friday.
The Internal Revenue Service, which issued the guidance, did not immediately respond to a request for comment. The Treasury Department and the White House declined to comment. The administration’s guidance came days after a payroll processor for one of the country’s largest employers — the federal government — announced that it could defer payroll taxes on the part of its employees.
Trump signed his payroll tax order earlier this month as congressional negotiations over a new coronavirus aid package broke down, promising at the time that it would result in larger paychecks for Americans. But his directive triggered widespread controversy as soon as it was signed, as tax experts in particular feared it would be impractical to implement.
Businesses fretted about the difficulties they’d face updating their payroll systems on a short time frame, and tax experts felt workers might struggle to repay the sums they owe, which could reach into the thousands of dollars depending on their incomes. Many, however, feared the future effects on Social Security and Medicare, particularly as Trump vowed to “terminate” the tax. AARP, the powerful senior’s lobby, sharply rebuked the White House earlier this month out of concern that the president’s plan could threaten future benefits, even as senior administration officials promised to protect retirees.
The Trump administration’s guidance Friday further added to the confusion. Companies that take advantage of the deferral program beginning Sept. 1 are tasked with collecting what their workers owe beginning next year. But it is unclear whether a worker — someone who perhaps doesn’t want to have to deal with repaying the amount they owe next year — can opt out of the system, said Adam Cohen, a tax lawyer and partner at Eversheds Sutherland.
“There’s still going to be a huge amount of uncertainty about how this could be implemented, which I think is going to lead most employers not to participate,” added Seth Hanlon, a senior fellow at the left-leaning Center for American Progress.
Others pointed to the fact that the Trump administration offered little word about what would happen if an employee was laid off, fired or changed jobs, said Garrett Watson, a senior tax policy analyst at the Tax Foundation. Already, there were fears that Trump’s order might result in billions of dollars in losses, as the government struggled to collect back-due tax balances. But Watson said the problems could be particularly pronounced depending on how the president’s order is implemented.
“It’s fair to say the more complex and uncertain it is … the longer it will take to get that repayment and the more likely there will be a remaining gap in collections going forward,” he said.