This story looks like a case of trying to buy your vote using your own money.
President Trump ordered the suspension of payroll tax collections during the election campaign. But workers will have to repay the money right afterwards.
It’s complicated. If you’re confused, don’t worry. Trump surely did not understand the details either.
Each payday, employees are taxed on their pay to finance Social Security and Medicare. Employers match that contribution. Self-employed people pay both parts of the tax.
If the boss stops collecting the employee’s payroll tax, the worker gets a tax cut, leaving more income to make purchases or pay the rent and other bills.
That income boost can serve two purposes. It can stimulate the economy, which is needed during the pandemic. It may also help make Trump look good on the eve of an election, because he appears to have cut taxes.
Congress believes that temporary payroll tax breaks won’t help much and will weaken Social Security, so it doesn’t adopt Trump’s payroll tax cut. Some of his advisors agree, but Trump simply ignores the concerns and orders it anyway.
Here’s where matters get complicated. The Treasury Department must write the rules to make Trump’s decision happen. When the government writes rules, matters get complicated.
Treasury quickly issues the rules, apparently letting employers decide if they want to join the plan. If so, they stop deducting only the Social Security part of the employee’s payroll tax from September 1 until the end of the year.
To recover the lost tax revenues, employers will raise the payroll tax on workers for the first four months of next year.
Is it reasonable to expect that, in just four months, they will be able to pay double payroll taxes thanks to an immediate economic recovery, the result of Trump’s election victory or the announcement of a Covid-19 vaccine?
Not only is the plan optional and temporary, it does not include self-employed people. If you fish for lobsters, no help for you. Earn too much and you don’t get a penny of relief. Retirees get nothing out of it except added worries about the viability of Social Security.
What about people who retire or quit in the next four months? How will their lost payroll taxes be recovered? That’s up to the employer to figure out. Otherwise, the boss swallows it.
Long ago, Sir Walter Scott, a Scottish poet wrote, “Oh, what a tangled web we weave, when first we practice to deceive.” His words really fit this payroll tax game. A tax cut that is an illusion has produced confusion.
There is only one true winner from Trump’s payroll tax decision. Trump. He might have scored a political point, but the positive effect probably lasted little longer than the day he announced it.
There are three takeaways from the president’s decision. Each of them is far more important and worrisome than the short-term effect of Trump’s tax holiday.
Trump stridently opposes the so-called “dark state.” It is supposedly composed of unelected federal bureaucrats who adopt rules to fulfill their own goals or those of some secret, socialist conspiracy. They are charged with being a danger to democratic government and wielding too much independent power.
In fact, government officials are mandated to issue rules to make policies work. Neither presidents nor legislators are expert enough in a wide variety of fields to understand the details of how policy is translated into practice.
When officials receive a policy directive, they must think of all of the consequences, intended or otherwise, and try to deal with them. The detailed end product looks a little different from the broad policy.
That’s not the work of some subversive dark state. That’s the inevitable result of the process. Policy makers could give broad orders and allow no rules, but they would have to accept the consequences of their errors. Or they should be more specific with their orders.
Rules are needed because life is complex. Many interests may be affected by new policies, and they have to be taken into account.
The result is the second takeaway – “red tape.” Often people affected by new policies must establish their eligibility. How? Fill out an application. Then the government must ensure that you told the truth and that you are really eligible. Forms and delay result.
The payroll tax suspension brings spools of red tape, especially for people running businesses.
Finally, who gave the president the power to fiddle with tax collection?
Presidents can propose tax policy, but only Congress is meant to decide it. Has it has given too much power of its constitutional power to presidents, because it finds legislating has become too complicated? That way lies dictatorship.