President Trump discussed the possibility of zeroing out the payroll tax through the 2020 presidential election, as a response to the coronavirus outbreak in a meeting with Senate Republicans on Tuesday, three people with knowledge of the conversation said.
Suspending payroll taxes through the end of 2020 would be a massive tax cut amounting to approximately $950 billion, according to the Tax Foundation, a center-right think tank, about 26% of all federal government revenue for the year. In other words, it would be nearly as large, in inflation-adjusted terms, as spent over the course of a decade through the stimulus package that President Barack Obama signed into law in 2009.
Trump said on Monday that he was interested in a payroll tax cut, but, at Tuesday’s Republican Senate lunch, he floated the idea of zeroing out the tax altogether, according to people with knowledge of the discussion. He did not, though, present a specific proposal.
“The payroll tax holiday is a bold move,” National Economic Council Director Larry Kudlow said at a press briefing later on Tuesday without giving details of what Trump is proposing. “It’s a very bold move.”
Asked how the administration might make up for revenues lost by cutting the tax, Kudlow responded, “I think, over time, we’ll make it up with much better economic growth.”
Payroll taxes paid by employees and employers and are used to fund programs such as Social Security and Medicare. Social Security payroll taxes are 12.4%, split evenly between employees and employers, and the Medicare tax rate is 2.9%, split evenly between employers and employees, for a combined payroll tax rate of 15.3%.
Currently, all employees pay a 6.2% Social Security payroll tax on wages up to $137,700. For example, an employee earning $50,000 per year right now would pay $3,100 in payroll taxes.
Garrett Watson of the Tax Foundation said a payroll tax cut would most benefit those at the middle of the economic spectrum, while those in the top 20% of earnings wouldn’t benefit much from it since payroll taxes are regressive. Watson also said that those at the bottom of the economic ladder who have hourly wages or are out of a job wouldn’t get relief, since they would not be on payrolls.
