With the latest Wuhan Chinese virus financial relief package stalled in Congress -- mainly because as usual, legislators (particularly Democrats) insist on stuffing the bill with unrelated pork and pet causes -- President Trump took it upon himself to try to offer something to Americans who continue to suffer economically as a result of various state reactions to the "kung flu."
The president certainly means well, and has the best interests of Americans at heart since Congress failed to act, but his solution will cause more long-term problems that it will solve in the short term.
For starters, this is only a temporary suspension of payroll tax collection, not a cancellation of the tax. This means that when payroll deductions restart, not only would workers have to start paying the tax again, but they'd be taking home less money, as the postponed collections would have to be made up. Trump has made some noise about making the suspension permanent if he's re-elected, but there's no guarantee that: 1.) he'll be re-elected, and 2.) he has the authority to do so without congressional approval.
But the bigger factor is this: Social Security and Medicare are already on perilous financial standing. Cutting off their sources of revenue endangers the retirement income and health insurance of millions of current and future retirees. This benefits no one.
Trump administration officials are making the case that a temporary suspension of the payroll tax, and the resulting increase in take-home pay, will actually pump more money into workers' bank accounts and the nation's economy than would another round of direct stimulus payments. That's arguable, but what happens when net pay goes down in January when the tax is reinstated with additional withholdings for the deferred payments? It's already painfully obvious that the usual holiday economic boost probably won't happen this year. "Black Friday," so named because it often brings retailers' ledgers out of the red and into the black for the year, will be a sad shell of its usual self. Food prices are continuing to rise, and energy bills will go up as winter descends upon much of the nation. The first quarter of the year is hardly a time for workers to have less money to spend than they did in the same period in the prior year.
The perfect solution would be for Congress to get its act together and pass a narrowly-tailored economic relief bill that addresses only vital concerns. No bailouts for cash-strapped states that have mismanaged their funds due to pension issues (such as Kentucky and Illinois.) No influx of money for the inefficient United States Postal Service. None of the extraneous stuff that members of both parties always insist on sticking in emergency funding measures.
Absent that, Trump's best play would have been to suspend collection of the individual income tax, not the payroll tax. Those revenues go for general governmental purposes, not pensions and insurance coverage for retirees, and there's always plenty of room to cut frivolous federal spending. The annual list Sen. Rand Paul compiles would be a great place to start.
Since it is an election year, there are political considerations, for sure. Some Democrats are making noise about suing to block Trump's executive order. That gives Republicans -- Trump along with Senate and House candidates -- plenty of ammunition to say that Democrats are trying to keep people from getting financial relief, and that Trump stepped in to save the day.
There's a prevailing school of thought in life that doing something is better than doing nothing, even if that's not necessarily the case. In this instance, it looks as if Trump has risen above the congressional stalemate and delivered relief to the American people. But it's certainly not an ideal solution, and not even the best one the president could have chosen. We'd be better off if Trump leaned on Mitch McConnell and the Senate to work with the Democrats on a compromise virus stimulus package that addresses the immediate needs, and postpones other funding decisions until Congress considers spending bills for the new fiscal year that starts Oct. 1. For many wage earners, suspending the payroll tax may be worse than doing nothing at all.
If a deal doesn't happen, and the Senate and House remain at odds, then Trump would be wise to reconsider the payroll tax suspension. His intentions are honorable, but he's certainly taken a flawed course of action. An income tax suspension that doesn't have to be paid back, vs. a payroll tax suspension that will have to be made up, would be the best way to go.
