He is hoping to force Congress to make this a permanent tax cut, because the bill comes due in January, millions of Americans may be owing thousands of dollars in back taxes.
It will have the effect of increasing take home pay in the short term, which might give the economy a temporary boost, particularly for a tax as regressive as the Social Security tax, which cuts off at $137,700.00.
It will also have the effect of emptying the Social Security Trust Fund in about 2 years.
On the bright side, I think that many, and possibly most, of employers are going to collect the taxes anyway, because the money is still owed, just deferred, particularly since there is a cost to rewrite their payroll withholding software:
The Treasury Department began implementing President Trump’s plan to allow a payroll tax deferral, an executive action he says will help households weather the pandemic-ravaged economy but which faces significant practical hurdles and skepticism from employers.When a policy developed to help Republican electoral prospects runs afoul of the U.S Chamber of Commerce, you know that this policy is f%$#ed up and sh%$.
The government’s announcement came late Friday, just four days before it is scheduled to take effect. It postpones some payroll taxes that would normally be due between Sept. 1 and Dec. 31 and makes them due between Jan. 1 and April 30, 2021. Under this approach, employers who opt to stop some paycheck withholding now could withhold twice as much as usual early next year.
Mr. Trump on Aug. 8 ordered the Treasury Department to allow the tax deferrals under a law that lets the Treasury secretary postpone tax deadlines after a disaster. It still could take time for private payroll companies to reprogram their systems, and employers concerned about costs and legal exposure may not bother changing workers’ tax withholding.
The government’s action doesn’t actually change the underlying taxes, because only Congress can do that. Employees would still owe the taxes eventually. So someone making $75,000 annually could save as much as $1,550 in 2020 but would have to pay that same amount later.
Mr. Trump wants Congress to forgive that tax liability. The IRS document issued late Friday says employers must pay those taxes in the first four months of 2021 or “may make arrangements” to collect the taxes from employees.
“The guidance makes it clear the only purpose of this scheme is to give the illusion of a tax cut before the election,” said Seth Hanlon, senior fellow at the Center for American Progress, a group aligned with Democrats.
The U.S. Chamber of Commerce, the National Council of Chain Restaurants and other trade associations warned that it would be unfair to impose potential future costs on workers and said a system where employees could choose whether to participate would be unworkable.
One very large employer looks likely to participate—the federal government that Mr. Trump controls. The National Finance Center at the Department of Agriculture, which processes payrolls for more than 600,000 federal workers at multiple agencies, said last week it was preparing to implement the tax deferral in September.
Forcing hundreds of thousands of federal employees to take tax deferrals could put pressure on lawmakers to forgive the taxes later, as Mr. Trump wants them to do.