Bipartisan Panel Pans Payroll Tax Cut

Blog Post
Thursday, July 23, 2020

This week, I hosted an informal online conversation with think-tank scholars Brian Riedl of the right-leaning Manhattan Institute and Ben Ritz of the left-leaning Progressive Policy Institute. The goal: to bring together public policy experts with differing political philosophies in search of common ground on key policy matters of the day. The topic: President Trump’s demand to include a payroll tax cut in the next pandemic relief package.

Highlights:

  • The president has not yet released details of his proposal, but because the CARES Act already allows employers to defer their 2020 payroll tax liability, the administration’s proposal will probably focus on the employee-paid portion of the payroll tax.   

  • A payroll tax holiday would fail to help those who need help most. In the midst of this pandemic, the poor, the unemployed, and senior citizens are most vulnerable, but none of these groups actually pay the payroll tax. In fact, higher-income employed persons would receive the biggest tax cut.

  • A payroll tax cut provides little “bang for the buck.” It would be costly (because lots of workers pay the tax), but would also fail to deliver a meaningful financial boost to a worker’s weekly paycheck since it is paid out over months.  

  • The Obama administration experimented with a payroll tax holiday in 2010-12 and research shows it was less effective at delivering economic stimulus than lump-sum tax rebates.

  • For these reasons, there is little support among both Republicans and Democrats in Washington for a payroll tax cut - the president stands largely alone.

  • Experts across the political spectrum agree that the next pandemic relief package should focus on providing aid to the unemployed and small businesses struggling to stay afloat – and a payroll tax holiday fails on both counts. 

You can watch the entire discussion in the video below.