As tens of millions of Americans face long-term unemployment, instead of advocating for policies that would help those feeling the greatest impact of the crisis, Donald Trump is now pushing for a payroll tax holiday to fully eliminate the 7.6 percent tax.
The payroll tax, split evenly between workers and employers, is hardly a progressive way to fund a welfare state — but Trump’s plan would set up an obvious and destructive policy trap that Democrats would be fools to fall into.
Nearly forty million people have lost their jobs, and the Congressional Budget Office estimates that unemployment will remain above 9 percent through next year. Because a payroll tax cut only impacts those still receiving a paycheck, the jobless would be completely left out. Enacting a stimulus program that provides them with no benefit is simply an act of malice against low-wage workers who have been most impacted by this crisis.
Furthermore, higher-income families would receive outsized benefits from a payroll tax cut when compared with those at the bottom of the spectrum who are most likely in financial distress. For example, a married couple earning more than $275,400 (the cap on Social Security taxes) who remained employed during this crisis would receive a tax break of $21,068 over the next year. A lower-income couple, in which one spouse was laid off and the other was earning $20,000 per year, would receive a tax break of just $1,530, less than $30 a week, according to the Center on Budget and Policy Priorities.
The motivation behind a payroll tax holiday is not to help families through this crisis. Instead, it is nihilistic political gamesmanship.
A cut in the payroll tax directly reduces funding for Social Security and Medicare. This stems from the dysfunctional way we fund our welfare state. Instead of using money from general revenue, Social Security and Medicare are funded through their own revenue streams that do not need to be appropriated every year by Congress.
Franklin Roosevelt was very clear that the reason Social Security was created with a dedicated payroll tax impacting all workers was to defend the program against attempts to destroy it. “We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits,” he said in 1941. “With those taxes in there, no damn politician can ever scrap my social security program.”
By law, unlike the rest of government, Social Security can never go into debt. It collects taxes and places any yearly surplus in its trust fund which purchases government bonds. If Social Security needs more revenue than it has taken in during the year, it can draw from its previously accrued surplus. If that surplus dries up, it would require congressional action to cut benefits, raise taxes, or issue debt.
Republicans have been trying to provoke this crisis for a generation. A payroll tax holiday would shift the actuarial tables and create the perception that Social Security was going “bankrupt.” They would then use this as the excuse to cut Social Security or enact a privatization scheme, a favorite second-term hobbyhorse for Republican presidents. After denying it during the 2004 election, it was one of the first policies George W. Bush tried to get through Congress when Republicans controlled both the House and Senate in 2005.
Bad economic and harmful policies are par for the course from this White House, but in this case there is a risk Democrats accept this Trojan horse, especially considering Nancy Pelosi has stated there will be “no red lines” for Democrats when negotiating with Mitch McConnell and Trump over the next coronavirus relief package.
Why would Democrats, when they control a branch of government, enact such a scheme? Because they have before. In fact, they did in December 2010, during the lame-duck session where they still held control over both chambers of Congress and the White House. Republicans blocked the extension of Barack Obama’s Making Work Pay tax credit. Desperate to keep providing economic stimulus Democrats were keen to make a deal. The ultimate compromise was a 2 percent payroll tax holiday through 2011. This was then extended through the end of 2012.
At the time Nancy Altman, who was appointed to the Social Security Advisory Board by Pelosi wrote, “Today’s Democrats fail to understand the program, and so are not only blind to subtle assaults against it, but seem to conspire in those assaults.”
Donald Trump’s cut is far deeper, and with Republicans in control of the Senate the risk is far greater.
Once this “tax holiday” is in place, it’s an easy bet that Republicans will fight to extend it. After years of party leaders and various members of Congress pledging over and over again not to raise taxes on the middle class, Democrats will have put themselves into a bind. You can bet the GOP will use every legislative maneuver they have to force a vote on this extension. They will then run ad after ad claiming Democratic members of Congress who voted against it sought to raise taxes on the middle class.
Donald Trump already told a group of Republican senators that he would like to make the payroll tax cut permanent.
There is a simple way to confront this problem. Instead of taking the money out of the Social Security system and limiting those who can receive it to the currently employed, direct cash payments should be the Democratic red line. Kamala Harris, Bernie Sanders, and Ed Markey have introduced a bill in the Senate that would provide $2,000 per month until the end of the economic crisis. Tim Ryan and Ro Khanna have introduced a similar bill in the House. Not only would this protect funding for Social Security and Medicare, but it would also provide a real financial backstop during this crisis.
Any Democrats supporting a payroll tax cut are not just trying to help their constituents during a crisis — they’re risking the future of Social Security and Medicare.