Analysts and economists, both liberal and conservative, say U.S. president Donald Trump’s proposal to suspend the payroll tax could take away close to $1 trillion from national coffers — and do little to alleviate the risk of a recession or help those most in need in light of the spread of the coronavirus pandemic, according to news reports.
Trump and his economic advisors proposed the tax break in a private meeting with Senate Republicans on Tuesday. Administration officials speaking on condition of anonymity told the Associated Press the plan hasn’t been completed by that point. And the Senators at the meeting said the plan had few details.
More details about the plan have emerged. As described by Peter Navarro, one of Trump’s economic advisers, the government would waive the 6.2% Social Security tax as well as the 1.45% Medicare tax on workers’ income through the end of the year, the New York Times writes. In addition, the government would waive the same taxes as they’re applied to companies, while the self-employed would be spared the 15.3% tax that they pay, according to the newspaper.
Suspending the tax could cut into national revenue by $840 billion, according to the Committee for a Responsible Federal Budget, the Times writes. The Tax Foundation puts that figure at $900 billion or more, according to the newspaper. Other provisions in the proposal, such as federal assistance to affected industries and sick pay for employees under quarantine, could tack on tens if not hundreds of billions of dollars, the Times writes.
Some analysts welcome the move.
Karl Smith, the vice president of federal tax and economic policy at the Tax Foundation, says the payroll tax break “would not only increase workers’ take-home pay but would ease cash flow constraints for employers who are likely to face a rough patch in the incoming months,” according to the newspaper. The foundation, however, while typically in favor of slashing taxes to help the economy, hasn’t taken an official stance on the proposal, the Times writes.
Other analysts are far more skeptical.
“A payroll tax cut like the president wants wouldn’t help the elderly, non-employed, who are at the most risk from the virus,” Michael Strain, an economist at the conservative American Enterprise Institute, wrote Wednesday on Twitter, according to the newspaper. “It would provide a larger benefit to the well off. And it isn’t targeted on those who need it.”
Claudia Sahm, an economist at the liberal Washington Center for Equitable Growth, says that a payroll tax isn’t the kind of stimulus that would stave off a recession because its effects would to be “too small,” according to the Times. Both Sahm and Strain say cash assistance to Americans would be more effective, the newspaper writes.
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