More than a month after US President Mr. Donald Trump signed an executive memorandum to defer the collection of the payroll taxes that workers pay to help fund Social Security, few companies or people are taking part. Trade groups and tax experts say they know of no large corporations that plan to stop withholding employees’ payroll taxes this fall. As a result, economic policy experts now say they expect the deferral to have little to no effect on economic growth this year.
The fizzling of the payroll plan is the most prominent example of the difficulties Mr. Trump has encountered in trying to stimulate the economy while bypassing Congress. Another of his executive actions, to repurpose disaster funds to create a temporary lift in unemployment benefits, has quickly lost steam: Federal officials told states this week that the benefits would run out after six weeks for workers.
The payroll tax deferral was intended to goose the economy by temporarily giving workers more money in their paychecks by deferring the 6.2 percent of wages that companies normally withhold to help fund Social Security.
After reviewing the details, executives at the United States Postal Service decided against enforcing it for their workers, a spokesman said Friday. Officials at Ford Motor said they also had concerns after reading the Treasury Department’s guidance, though they have yet to give employees formal guidance on the issue.
“Many of these men and women are fresh out of high school and earning the first paychecks of their lives,” an Army captain wrote to Representative Donald S. Beyer Jr., Democrat of Virginia, who represents Northern Virginia suburbs that are home to many civilian and military federal employees. “The sudden influx of money, unexplained, will likely be spent very quickly by many of them, with little regard for later consequences. Many of the soldiers within the ranks live paycheck to paycheck, and if they are not aware that all of this money must be paid back next year, it could be ruinous to their financial health.”
Not all federal employees will be forced into the deferral. The chief administration of the House told members on Friday that it would opt out of the plan, having determined “that implementing the deferral would not be in the best interests of the House or our employees.”
Mr. Trump has been fixated on the payroll tax throughout the pandemic. He pushed Congress early and often to temporarily eliminate the 15.3 percent tax on wages that helps fund Social Security and Medicare, which is split between employers and employees.
Stymied by Congress, and urged on by some of his outside advisers including the conservative economists Arthur B. Laffer and Stephen Moore, Mr. Trump signed an executive action on the payroll tax in August. He did not have the authority to eliminate the tax on his own, so instead, Mr. Trump ordered the Treasury Department to delay workers’ obligation to pay the tax through the end of the year, for employees earning up to $4,000 every two weeks.
Larry Kudlow, the director of Mr. Trump’s National Economic Council, told the Republican National Convention last month that the move “essentially gave a pay raise to 140 million working Americans.”. Last month, Treasury officials issued rules clarifying that companies could choose whether to withhold employees’ payroll taxes from September through the end of the year.
Companies that did not withhold the taxes would then be responsible for paying back the money from January through April, by withholding twice the normal amount of the tax. If an employee left the company before the repayment was complete, the business would effectively find itself on the hook for the tax bill. If the employee stayed, they would be in line for what amounts to a surprise winter pay cut, with paychecks shrinking for four months to make up for the added pay in the fall.
“A lot of companies are looking at this and saying, this has too many challenges,” said Caroline L. Harris, the vice president for tax policy and economic development at the U.S. Chamber of Commerce. “I have not heard from any companies that intend to do this.”
Some small businesses have said they will opt in and defer payroll taxes for workers, including ones owned by political supporters of Mr. Trump like an off-track betting company on Long Island, overseen by the chairman of the Nassau County Republican Party. But there were only two main reasons a private company might participate in the president’s deferral plan, said Rohit Kumar, a leader of the national tax office for PwC in Washington.
Representative Kevin Brady of Texas, the top Republican on the Ways and Means Committee, is preparing to introduce legislation to cancel the deferred payroll tax liability. “It would be a shame if employers large and small don’t help their workers with this deferral,” he said on Thursday in a call with reporters. By approving his bill, Mr. Brady said, Democrats could “create relief for workers and certainty for businesses.”
Source: The New York Times
