Payroll Tax Cut: Everything We Know About the Next Possible Financial Relief Effort

Discussion of a payroll tax cut

Following the news in late March about the $2 trillion stimulus package, there was much discussion throughout April regarding what could come next. As the coronavirus crisis only continues to worsen within many parts of the country, some have braced the subject of a second round of stimulus (even though many Americans have still not received their original payment). However, some figures, namely President Donald Trump, have voiced their support for a possible payroll tax cut in the future.

What President Trump has said

On Tuesday, Trump was asked directly about the possibility of a second round of stimulus checks. He replied to say, "I like the idea of payroll tax cuts." His answer came weeks after he voiced his enthusiasm over the possibility of sending out more stimulus payments to Americans.

What would a payroll tax cut entail?

Everyone who receives a paycheck has paid a payroll tax. Things included on this payroll tax include Social Security and Medicare. If the government does implement a payroll tax cut, it could greatly impact funding to those programs while also providing for more money to employees and employers in the meantime.

How would it affect Medicare and Social Security?

A payroll tax cut could greatly affect Social Security and Medicare, both of which rely on payroll taxes for funding. At the moment, employees and employers pay a 6.2 percent tax for Social Security and 1.45 percent for Medicare. Self-employed individuals pay these tax contributions on their own, 12.4 percent for Social Security and 2.9 percent for Medicare. CNBC has reported that both Medicare and Social Security are facing possible funding shortfalls amidst this pandemic and a payroll tax cut wouldn't do much to help that issue.

How would it affect Americans directly?

Under a payroll tax cut, Americans who still receive a paycheck could save slightly more money as they would not have to pay those specific tax contributions. However, a payroll tax cut wouldn't do much to help individuals who have lost their jobs amidst this health crisis. Additionally, those with higher incomes could actually disproportionately benefit from this plan.

What experts are saying

Experts aren't entirely sold on the idea of a payroll tax cut. Garrett Watson, senior policy analyst for the Tax Foundation, recently told reporters that a payroll tax cut would, in particular, not have a great effect on the rising unemployment levels in the country. He also expressed that this plan wouldn't be of great help to vulnerable Americans, especially service workers.

"When you do a temporary tax cut like what the White House is proposing, the literature generally finds there isn't a big effect on employment levels," Watson said. "If you look at the 2009, 2 percentage points payroll tax cut under the Obama administration, the evidence bears out that most of that federal tax cut was saved by consumers."

What about a second round of stimulus checks?

As for a second round of stimulus checks (in lieu of a payroll tax cut), it's currently up in the air. While members of Congress have proposed a plan, the Emergency Money for the People Act, that would provide for $2,000 per month over the course of six months (or until the pandemic has subsided) to eligible Americans, it has not yet made its way through the legislative process.