The Dangerous Silliness of Trump's Suspension of Social Security Taxes

by Neil H. Buchanan
With the Democrats neurotically worrying about whether the latest blip in one poll or another means that all is lost or that Donald Trump's incitement of violence will "work" politically -- a neurosis that is part of an infinite feedback loop satisfying the press's endless need to fill space with hot takes and over-interpretation of minutiae, all in the service of turning "urban rioting" into this year's "but her emails" -- perhaps the only sanity-preserving move is to think about matters of actual policy substance.  At least, that is what I am betting on in my efforts to be able to sleep at night.

To be clear, there is nothing more important right now than the way the supposedly anti-Trump media are conflating peaceful protests with violence and rioting, even when the problems that we are seeing are in substantial part a result of police escalation and pro-Trump provocateurs' opportunistic violence (all incited and excused by Trump himself).  And the chin-stroking columns suggesting that maybe suburban Whites really are coming around to Trump are especially harmful because they crowd out the opportunity to simply say, "White and Black people alike are less safe when the President encourages violence."  "How will this play?" replaces "What is this?"

But there is not much more to say about this topic beyond that Trump is (again) the beginning and end of the problem.  When it comes to his actual policy decisions, however, while he is still certainly a big part of the problem, at least we can say something more than, "If he cared at all about people he would stop encouraging extremists."  Indeed, we can ask how his preferred policies will affect the world.

Although Trump's presidency has been notably light on policy accomplishments, he has done a lot of damage through administrative action and executive orders.  Here, I want to talk about the order that Trump issued last month, taking effect today, that purports to be a "payroll tax cut."  That is not what Trump has actually done, and there are a multitude of perversely interesting aspects of the order.

The media's coverage of Trump's four executive orders (the other three dealing with unemployment benefits, evictions, and student loans -- all similarly disingenuous and empty) was actually surprisingly good in its deep skepticism.  True, the White House's language was allowed to frame the coverage in unfortunate ways, but pretty much everyone who is not locked in on voting for Trump knows that this was essentially an empty political stunt designed to make it appear that Trump was doing something, even as he refuses to negotiate a deal to extend unemployment benefits, send much-needed funds to states and cities, and on and on.  Good job, media!  Seriously.

But when I described Trump's executive orders as "essentially an empty political stunt" just a moment ago, the word essentially was doing quite a bit of work.  That is, a pure political stunt would involve merely making an announcement backed up by no action, such as yet another "infrastructure week" or Trump again claiming that he is -- any day now -- going to reveal a plan to replace the Affordable Care Act with something tremendous and cheaper.  Sometimes, that kind of empty talk can do damage, if it results in people thinking that they are about to receive a benefit that they will not receive, so even this is hardly a harmless tactic.

In the case of Trump's four executive orders, however, there is action to back up the words, but they at best have very limited positive impact and at worst make things somewhat worse (which is why it is good that they are in fact so minimalist).  Regarding the payroll tax specifically, there is a lot of nothing and some possibly bad effects.

Given that Trump's orders were issued in response to an economic crisis (substantially of his own making) that is still at depression levels, it is worth recalling that even Republicans in the Senate were simply uninterested in passing a payroll tax cut.  This was entirely Trump's thing, and when it came time to issue the order, it is clear that someone in the Administration was at least trying to make it as toothless as possible.  Again, however, toothless is not the same thing as harmless.

So what does the order say?  It is, of course, a nakedly political document, with the very first sentence of Section 1 repeating Trump's favorite blame-shifting, xenophobia-inciting move: "The 2019 novel coronavirus (COVID-19) that originated in the People’s Republic of China has caused significant, sudden, and unexpected disruptions to the American economy."  We are not off to a good start, but at least that is not policy related.

What of the payroll tax "cut" itself?  Competent reporters quickly picked up on the fact that this is not a cut but merely a delay.  That is, any taxes not paid over the next four months (September through December, 2020) must be paid in full in the ensuing four months (January through April, 2021), on top of the payroll taxes that would be due in the normal course of things over those later four months.  I will return to that issue in a moment, but the order is actually even more limited than it seems.

First, the order applies to Social Security only, not to the Medicare payroll tax.  Second, it applies only to the employees' side of the Social Security tax.  Thus, even though the total amount of payroll taxes is 15.3 percent of earned income (12.4 percent for Social Security and 2.9 percent for Medicare, with each split 50-50 between boss and worker), the total amount in play is only 6.2 percent.

Moreover, the temporary non-cut "shall be made available with respect to any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000," or approximately $100,000 per year.  I have not read the IRS's subsequent guidance on this, so I do not know whether they have smoothed over the obvious cliff effect (with workers making $4,001 or more not receiving any putative benefit at all); but since this is a terrible idea, I guess we should be happier even if they clumsily exclude some people from eligibility.

Of course, the people who will be the most tempted to go for the immediate extra cash-flow are precisely the people who will feel the sting hardest in early 2021, meaning that this policy's apparent solicitousness toward lower-income workers is actually a cruel trick.  Luckily, because the Administration puts employers on the hook for collecting all of the payroll taxes eventually owed, employers are apparently being advised to discourage employees from participating at all.

My guess, then, is that most people will not partake of this non-treat, which is a good thing.

Of course, Trump's order also adds this non-binding teaser: "Sec4.  Tax Forgiveness.  The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum."  This means, I supposed, that some people who would otherwise be on the fence about participating might end up betting that, in the end, this truly will turn out to be a tax cut and not merely a deferral; but it is difficult to imagine that this would be a real consideration for almost anyone other than the people with whom I went to graduate school in economics (virtually none of whom would be eligible, anyway, given the 100k cutoff).

What Sec. 4 is actually designed to do, however, is to tie this stunt to an even bigger stunt, which is Trump's loose talk about completely eliminating the Social Security payroll tax if he is still in office next year.  And that idea is truly fascinating, especially because it sets up a big political trap that many Democrats have already fallen into, which is to say that not having a payroll tax automatically means that Social Security would go belly up.  That is not a given, but what matters is how the public and Congress would react to the idea of funding Social Security partly or completely through something other than a payroll tax.

That last set of issues is complicated and deserves a full column (at least) to discuss.  And as it happens, my forthcoming Verdict column this Thursday will examine the long-term financing questions that Trump's random-thought-generator of a brain has made suddenly relevant.

For now, the point is that Trump's actual executive order is not only limited on its own terms but is such a bad idea -- not only from a national policy standpoint but even at the level of each individual worker -- that it is unlikely to have much effect at all.  To the extent that anyone does participate in it, they will discover that Trump cannot simply give them a tax cut on his own.  All he can do is needlessly complicate their lives.