Personal Finance

Trump is insisting on a payroll tax cut for workers. Why some experts say it's a 'terrible' idea

Key Points
  • Former President George H.W. Bush famously said, "Read my lips. No new taxes." Today, President Trump is insisting, "No payroll taxes."
  • Trump said in an interview on Sunday that any new stimulus efforts must include payroll tax cuts for workers.
  • Experts say such a move would not help the population who needs it most: the unemployed.
President Trump participates in a live May 3 Fox News Channel virtual town hall called "America Together: Returning to Work" about response to the coronavirus pandemic, broadcast from inside the Lincoln Memorial in Washington, D.C.
Joshua Roberts | Reuters

President Donald Trump is digging in his heels and demanding that further stimulus legislation passed by Congress must include payroll tax cuts for workers.

"We're not doing anything without a payroll tax cut," Trump said in a Fox News interview that aired on Sunday.

The $2 trillion CARES Act implemented by Congress gave employers a temporary reprieve from payroll taxes until the end of the year. That goes for Social Security and certain railroad retirement taxes.

Now the president wants to give workers a similar cut.

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Payroll taxes are withheld from workers' wages and are used to fund government programs such as Social Security and Medicare.

Currently, employees and employers are each subject to a 6.2% tax for Social Security and 1.45% for Medicare. Self-employed individuals, meanwhile, make the full contributions on their own: 12.4% for Social Security and 2.9% for Medicare.

Those Social Security taxes phase out after $137,700 in income. If you earn over $200,000 individually, or $250,000 if you're married and file jointly, you pay an additional 0.9% Medicare surtax.

It isn't the first time the president has floated the idea of cutting payroll taxes, which would let American workers take home bigger paychecks.

Officials: Pres. Trump pitches 0% payroll tax rate for the rest of 2020
Officials: Pres. Trump pitches 0% payroll tax rate for the rest of 2020

However, financial experts are generally not a fan of such a move. One big reason for that is the policy would help only the still employed and not those who are out of work and have been hardest hit by the coronavirus pandemic.

Len Burman, institute fellow at the Urban Institute and professor at Syracuse University, said it is a "terrible idea."

"The main problem with the proposal is that it would go to the people who least need help," Burman said. "It seems like you're deliberately targeting it to people who are in the best situation … the ones who are still working."

The economic recession will likely speed up the exhaustion date for the Social Security trust funds, Burman said. Any plans for payroll tax cuts would have to include ways to replenish those funds, which are currently scheduled to run out in 2035. At that time, 79% of promised benefits will be payable.

The main problem with the proposal is that it would go to the people who least need help.
Len Burman
institute fellow at the Urban Institute

"Trump's actions are a war on seniors," Nancy Altman, president of advocacy organization Social Security Works, said in a statement. "He wants to open up the economy, even though COVID-19 is disproportionately costing seniors their lives.

"Now he is insisting on threatening Social Security on which most seniors rely for their food, medicine and other basic necessities," she added.

The White House had no comment.

Legislators in the Democratic-controlled House have been lukewarm to the idea, so the chances of a payroll tax cut happening any time soon are uncertain.