President Trump’s payroll tax deferral is supposed to reduce taxes and make employees cheaper to hire. It may do precisely the opposite, which Trump would know if he had real tax experts or economists advising him instead of people who just play them on TV
washingtonpost.com/opinions/trump…
washingtonpost.com/opinions/trump…
A payroll tax *cut* was not a great idea for addressing what ails the economy. Expensive and doesn't help unemployed people not on payrolls, for instance.
But a payroll tax *deferral* is incredibly stupid. washingtonpost.com/opinions/trump…
But a payroll tax *deferral* is incredibly stupid. washingtonpost.com/opinions/trump…
"Deferral" is a fancy word for delay. Under Trump's exec action, employee-side payroll taxes don't have to be withheld through end of 2020, but they'll still be owed in 2021, basically in a balloon payment. The question is: Who'll be left holding the bag? washingtonpost.com/opinions/trump…
There are more or less 3 scenarios.
Scenario 1: Congress forgives taxes, turns deferral into cut. But these taxes fund Soc Sec, so this is controversial. And if Congress could pass difficult bills, we probably wouldn't be in current situation washingtonpost.com/opinions/trump…
Scenario 1: Congress forgives taxes, turns deferral into cut. But these taxes fund Soc Sec, so this is controversial. And if Congress could pass difficult bills, we probably wouldn't be in current situation washingtonpost.com/opinions/trump…
Scenario 2: Employees get hit with big unexpected tax bill (deferred payroll taxes) ~April 15, one they didn't budget for. Major negative fiscal stimulus when we might still be in recession
Pretty likely they won't even realize they owe these taxes though washingtonpost.com/opinions/trump…
Pretty likely they won't even realize they owe these taxes though washingtonpost.com/opinions/trump…
Scenario 3: Congress doesn't forgive the deferred taxes, and employees don't pay them. Under US law, employers are now on the hook for the unpaid employee-side deferred taxes. And -- get this -- now the tax bill goes *up* washingtonpost.com/opinions/trump…
That's because if the employer pays off the employee's 2020 tax debt, it now counts as wages to the employee. The deferred tax payment gets treated as income in 2021 and is now subject to its *own* income & payroll taxes. That's right, taxes on taxes! washingtonpost.com/opinions/trump… 
Employer now must remit a "grossed up" payment to the IRS to make good on the employee's deferred, unpaid 2020 payroll taxes. This effectively raises cost to employers of every affected employee — exactly the opposite of what Trump claims his policy does washingtonpost.com/opinions/trump…
Exact amount by which this could raise the cost of a given employee depends on worker's salary/tax bracket. For higher-wage employees, one tax atty estimated it could raise costs per hire by ~60% for the next few months, once you account for all new taxes washingtonpost.com/opinions/trump…
Employers can try to recoup the cost of all these additional expenses from their employees (through additional withholding in 2021, for example)…but good luck with that, if those employees have already moved on to other jobs washingtonpost.com/opinions/trump…
Given all this: What employer in their right mind would choose to follow Trump's payroll tax deferral directive, and create huge new potential costs for themselves, if offered the choice not to? washingtonpost.com/opinions/trump…
BTW, another reason to suspect the Trump admin may not understand what its own payroll tax deferral does: In Fox interview, Mnuchin seemed to imply Trump's executive action defers Medicare payroll taxes. It does not, just Social Security (& railroad retirement) payroll taxes
