No deal on a new stimulus plan prompted President Donald Trump in mid-August to issue executive orders to defer payroll taxes, suspend student loan payments, instruct his Cabinet to find ways to assist renters and homeowners with lease and mortgage payments, and reinstate unemployment benefits.
Just days after announcing those orders, Trump said he was “looking very seriously” at a capital gains tax cut, as well as income tax cuts for middle-income families. “We’re looking at also considering a capital gains tax cut, which would create a lot more jobs,” Trump said during an Aug. 10 press briefing. He told reporters to expect more details in the “upcoming few weeks.” White House National Economic Council Director Larry Kudlow said on Aug. 12 that the Trump administration would not seek a capital gains tax cut through executive order.
The presidential action on the payroll tax deferral doesn’t go into effect until Sept. 1, “giving employers some breathing room to figure out implementation — it may prove problematic in the long haul because if the deferred taxes are not ultimately forgiven through legislation or otherwise, employees will be subject to fairly large withholdings at a later date to make up for the deferral,” Jeff Paravano, chair of BakerHostetler’s Tax Practice Group in Washington, said in a legal alert.
He added, “Employers will need to recoup those taxes — even from employees [who] might not continue to be on payroll.”
Trump’s Payroll Tax Deferral Order applies only to Social Security payroll taxes that otherwise must be withheld and remitted from wages paid to employees normally earning less than $4,000 every two weeks (about $104,000 per year), and only to the Old-Age, Survivor’s and Disability Insurance (OASDI) component, not to the Medical Insurance (MI) component, Paravano explained. “Given the unusual nature of this relief and the potential risks to employers and employees associated with its expected implementation, the administration and Congress should be motivated to resolve their differences through legislation before Sept. 1,” Parvano wrote. “If they are not able to agree on legislation, Treasury guidance regarding workable and reasonable methods of compliance and potential recoupment will be critically important to employers.”
‘Strong Political Move’
Andy Friedman, founder and principal of The Washington Update, told IA in mid-August that issuing the executive orders “is a strong political move” by Trump. “It suggests that the president is stepping in to provide relief because Congress has failed to act.”
As to the unemployment insurance order, which provides $400 per week, Friedman opined that “typically, only Congress has the authority to appropriate and allocate funds, although the president may make decisions how to apply funds allocated for a particular purpose (e.g. Defense allocations).”
Separately on MSNBC, Senate Minority Leader Chuck Schumer, D-N.Y., said Trump’s unemployment order “is not going to be able to be put into place for a month or two, if at all.”
Trump had said that states would absorb 25% of the unemployment benefit cost, but then signaled that the federal government could pick up the entire $400 unemployment benefit if governors make a request.
The unemployment order would, said Sen. Ron Wyden, D-Ore., “throw already overburdened state unemployment insurance programs into chaos, making it harder to get benefits out the door.”
Added Friedman: “States are facing severe budget deficits as their outlays have increased and their revenue decreased. Many state governors and legislatures are unlikely to implement the program.”
Drain on Social Security
The order on payroll tax referral could “drain the Social Security trust fund,” added Wyden, ranking member on the Senate Finance Committee.
“While employers are unlikely to risk a massive tax liability by not collecting payroll taxes or having to double up collection later, if they do go along with this stunt, it would drain the Social Security trust fund,” Wyden said in a statement. “This fake tax cut would also be a big shock to workers who thought they were getting a tax cut when it was only a delay. These workers would be hit with much bigger payments down the road.”
Nancy Altman, president of Social Security Works, said that “Trump claims his power grab [on the payroll tax deferral] is about the economy, but that is ridiculous on its face. Since this is simply a deferral, employers will hang on to the money they withhold in anticipation of owing it in the future. Workers will not see a dime.”