Don’t Cut the Payroll Tax. Just Send People Money.
Here’s a better way to goose the coronavirus economy. By Michael R. Strain
There’s a better way to go. More on that in a moment. First, here are some drawbacks to cutting the payroll tax.
It wouldn’t help workers who’ve lost their jobs because they aren’t getting paychecks. For them, there’s no withholding to cut.
It wouldn’t help the elderly — a group especially at risk from the virus — many of whom are out of the labor force.
It would provide a larger benefit for the well-off. A person with an annual salary of $100,000 would receive a $2,000 benefit from a 2% payroll tax cut that lasted a year. Somebody earning $30,000, by comparison, would receive $600.
The benefits would arrive drip by drip, a little in each paycheck. That wouldn’t do enough for households affected by the coronavirus, which are likely to need a sizable infusion of cash to meet necessary expenses.
The timing would be challenging. Because the tax cuts would be tied to payroll deductions, it could be harder to get people the money they need when they need it.
Such a cut would reduce the revenue available to the Social Security program, which would almost surely result in a transfer to that program from general tax revenue. Doing this would reduce the fiscal discipline inherent in Social Security: that its spending is limited to the amount of money it receives from dedicated taxes. Undermining this fiscal discipline would threaten the public’s understanding of the program — that they pay into a pension plan while working, and draw benefits when retired — and invite other budget mischief in the future.
A cut in the payroll-tax rate of 2 percentage points would cost between $140 billion and $150 billion over a year, according to the Committee for a Responsible Federal Budget. There’s no real evidence that the U.S. economy needs a fiscal stimulus of that magnitude at this point.
It wouldn’t be targeted at the people who need the most help: low-income Americans and others who are economically vulnerable to the coronavirus, living in areas with severe outbreaks.
https://www.bloomberg.com/opinion/articles/2020-03-11/payroll-tax-cut-isn-t-best-way-to-perk-up-coronavirus-economy