Donald Trump's Payroll Tax 'Cut' Is Only a Deferral

The memorandum President Donald Trump signed on the payroll tax is not a "cut" but actually a deferment. In fact, those who do qualify for the deferment will still have to pay taxes later in the year. Trump has long voiced support for a payroll tax cut, which would mean less money going to federal programs like Social Security and Medicare.

The memorandum directs Treasury Secretary Steven Mnuchin to defer the payroll tax from Sept. 1 through the end of the year. It is available to only employees making less than $100,000 a year. Specifically, it states that employees qualify if their "wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods."

As Forbes points out, the requirement does not specify if an employee earns over $100,000 a year combined from multiple jobs. The memorandum does order Mnuchin to issue more detailed guidance on putting the payroll tax holiday into effect, so that issue and others could be outlined then.

Here's the payroll tax one. It's a deferral. That means either employers will continue to withhold your payroll taxes and you won't see any difference, or they won't withhold (unlikely), and you'll have it all withheld from your paycheck when the deferral expires at year-end. pic.twitter.com/qMeia6Qco0

— Bharat Ramamurti (@BharatRamamurti) August 8, 2020

Next, the payroll tax holiday does not mean taxes will be forgiven. In fact, you will still have to pay the taxes at a later date. During his press conference Saturday, Trump claimed he would "forgive these taxes and make permanent cuts to the payroll tax" if he is re-elected. However, eliminating the payroll tax will need an act from Congress, which has the power to "lay and collect taxes" according to the Constitution. Trump also did not say how he would pay for Social Security and Medicare benefits. Employees pay a 7% tax to cover these funds, while employers pay 7.65%, according to the Associated Press.

Trump's executive orders Saturday were criticized by Democrats and a handful of Republicans as an overreach of executive power, an attempt to defund Medicare and Social Security and not really providing the relief Americans need during the coronavirus crisis notes Bloomberg. After all, the payroll tax holiday will not help unemployed Americans. Trump did sign a memorandum on enhanced federal weekly unemployment benefits, but cut them to $400 and required states to be responsible for partly funding the program.

Sen. Ron Wyden, the ranking Democrat on the Senate Finance Committee, called the payroll tax holiday a "fake tax cut," which will "also be a big shock to workers who thought they were getting a tax cut when it was only a delay." Wyden added, "These workers would be hit with much bigger payments down the road." Rep. Richard Neal, the chairman of the House Ways and Means Committee, called the move a "poorly disguised first step in an effort to fully dismantle these vital programs by executive fiat."

White House economic advisor Larry Kudlow called it a "gigantic wage increase" for employed Americans. "We will do everything we can to forgive those loans," he said on ABC News Sunday. "So I think that's an incentive to work for those who are heroes during the pandemic, and also for the unemployed, it gives them an incentive to come back to work so we can offset some of the excesses of unemployment assistance."