Why payroll tax cut opponents may want to reconsider
By Stephen Kent, opinion contributor — 08/09/20 03:00 PM EDT
Democrats and Republicans in Congress and tax watchdog groups have come down hard against the White House’s payroll tax cut proposals. That may be a mistake that merits a re-think — not because of the hardball politics (Trump at times threatened to veto a new relief package if it didn’t include payroll tax suspension), but because under certain conditions, cutting payroll taxes could actually work and create jobs on a massive scale.
At present writing the new stimulus package is stalled and the White House is preparing to act unilaterally using executive orders, including one suspending payroll taxes for the rest of the year, which White House economic adviser Larry Kudlow says he believes Trump will sign. Leaving aside the legal question of whether a president can really cancel the tax without Congress, and the political question of whether the executive orders are a bargaining chip to force an agreement on a stimulus package, there’s the real-world economic question of what cutting payroll taxes could do for jobless Americans.
That question has been flubbed mightily in the current debate. Opponents keep saying that people without jobs don’t benefit from a payroll tax cut, since they don’t get a paycheck. That’s an obvious talking point, but it lacks context, ignoring the relevant facts about the tax.
Payroll taxes are the largest taxes two thirds of Americans pay. They’re regressive (income above $137,700 is exempt), and they’re distortionary, meaning they artificially raise hiring costs and undermine job growth, which we desperately need now. Cutting them puts more money in the pockets of more workers than any other tax cut, and boosts job and economic growth, which is why previous presidents enthusiastically cut or suspended them during downturns, including George W. Bush and Barack Obama.
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https://thehill.com/opinion/finance/511237-why-payroll-tax-cut-opponents-may-want-to-reconsider
