Trump’s payroll tax cut would be ineffective way to boost economy, critics say

American life has come to a grinding halt as coronavirus gains foothold in the nation

As the White House and lawmakers weigh different stimulus bills to insulate the U.S. economy from the coronavirus pandemic, President Trump has repeatedly proposed temporarily cutting the payroll tax rate to zero.

But critics have questioned whether a payroll tax holiday would be enough to boost the economy, as American life comes to a grinding halt. Health officials have recommended that groups of 50 or more don’t get together, prompting governors and mayors to close restaurants, bars and schools as the nation descends into chaos.

“A payroll tax is one thing to be considered when there are certain economic indicators,” New York Rep. Alexandria Ocasio-Cortez told Fox News’ Bret Baier last week. “But right now, we are dealing with a pandemic. And so what we need to make sure is that we’re taking swift actions right now to protect doctors, to protect people on Medicaid, to make sure that people can see a doctor.”

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Last week, Trump pitched temporarily eliminating the payroll tax to offset the fallout from the coronavirus, which causes a disease called COVID-19. The virus has caused volatility in the stock markets and forced the Federal Reserve to take dramatic emergency action, slashing interest rates to near zero and purchasing $700 billion in Treasury bonds.

Currently, all employees and employers pay a 6.2 percent payroll tax on wages capped out at $137,700. Right now, an employee earning $50,000 per year would pay $3,100 in payroll taxes. That money goes toward specific programs like Social Security, health care, unemployment compensation and workers’ compensation. Workers also pay a Medicare tax of 1.45 percent.

Workers who earn more than $200,000 individually, or $250,000 if they are married and filing jointly, pay an additional 0.9 percent Medicare tax.

However, some Democrats and Republicans have cautioned that a payroll tax cut would be slow to take effect since it would not provide immediate relief. And for those who are unemployed or lose their jobs because of the economic fallout, a payroll tax cut is essentially useless.

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Rep. Gregory Meeks, D-New York, suggested the payroll tax would be dead on arrival on Capitol Hill.

“I see folks who are being devastated, who are either losing their jobs temporarily or their hours are being cut, and there is nothing being done to help them get back on their feet,” he said last week.

If Trump were to pass a payroll tax cut, he would not be the first president to do so. In 2011 and 2012, former President Barack Obama reduced the taxes paid by employees to 4.2 percent from 6.2 percent. For an individual earning $50,000 annually, that’s an extra $1,000 in their pocket.

Obama’s former economic adviser Robert Wolf said on Monday that not only would the administration have a difficult time garnering bipartisan support for the cut, but that other stimulus options would be better suited for the situation.

“This is not a payroll tax issue that’s going to dribble out every two weeks,” he said. “People aren’t going to change their spending habits. Seventy-five percent of our country is service-based, and 75 percent of our GDP is consumer-based. We’re going to have a labor issue and we’re going to have a confidence issue.”

Instead, Wolf suggested the Trump administration explore eliminating sales taxes, offering tax rebates and issuing a huge debt package similar to war bonds during World War II.

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