Trump wants a payroll tax cut. Will it help the US economy?

Trump says he may not sign a new virus relief package into law unless it includes a payroll tax cut for US workers.

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    President Donald Trump believes a payroll tax cut for workers would boost the economy by encouraging spending, but Democrats and some Republicans believe it will not fix the most pressing problems [Evan Vucci/The Associated Pressis
    President Donald Trump believes a payroll tax cut for workers would boost the economy by encouraging spending, but Democrats and some Republicans believe it will not fix the most pressing problems [Evan Vucci/The Associated Pressis

    im????Few things brighten workers' spirits like a fatter pay cheque. If President Donald Trump gets his way, that will be a core feature of the new virus relief package Congress starts debating this week.

    Trump, who has hinged his re-election hopes on how voters feel about his stewardship of the economy, has put Congressional lawmakers on notice that he may not sign a new stimulus bill into law unless it includes a payroll tax cut for workers.

    But Congressional Democrats and some Republicans are opposed to the measure. What is the payroll tax and how would cutting it affect the economy - and me for that matter?

    What is the payroll tax?

    im????Payroll taxes fund government programmes, primarily Social Security (US federal old age, disability and survivor benefits) and Medicare (a federal health insurance programme for older folks).

    Who pays them?

    They are paid by workers and their employers. Most US workers see 7.65 percent of their wages deducted directly from their take-home pay and flown into the waiting hands of the Internal Revenue Service (the US federal tax-collecting agency). Employers remit the same amount to the IRS.

    Do all workers take the same hit?

    People who make more than $200,000 a year pay a higher percentage of Medicare taxes. And workers who are self-employed pick up both the worker and the employer share of payroll taxes.

    So will cutting the payroll tax mean more take-home pay for me?

    im????Provided you're working - yes.

    I am. So would more take-home pay for me help the economy?

    Fatter pay cheques usually encourage consumers to spend more. And consumer spending is the engine of the US economy, accounting for some two-thirds of growth.

    What about cutting payroll taxes for employers?

    They already got some relief on that front. The virus aid package Congress passed in March allowed eligible employers to defer paying their portion of payroll taxes through the end of the year.

    Sounds like it works. So why are some lawmakers resisting a payroll tax cut?

    im????Because many feel it doesn't fix the most pressing pandemic-related problems facing the US economy. Like making sure the roughly 30 million Americans who are collecting unemployment benefits right now stay afloat.

    So the unemployed would not benefit from a payroll tax cut? Even if it helps the economy?

    Not directly and not soon enough. The $600 federal weekly top-up to state jobless benefits that was rolled into the $2 trillion relief package Congress passed in March ends this week.

    How badly will it hurt the unemployed to lose that $600 top-up.

    im????Look at your pay cheque - deduct $600 for each week. How do you feel?

    Really unhappy. And stressed out.

    Exactly.

    What if Congress cut the payroll tax and extended the $600 top-up?

    It's possible - but here's the catch. Senate Majority Leader Mitch McConnell is expected to release a Republican blueprint for a new package this week that reportedly envisions spending around $1 trillion. Democrats, meanwhile, passed a bill in the house in May that envisions spending $3 trillion. Closing that gap will require a lot of horse-trading over priorities.

    What kind of priorities?

    im????Expect a lot of back and forth over things like extending or altering the current federal top-up to unemployment benefits; liability protections for businesses to make it easier for them to reopen; another round of $1,200 direct cash payments to individuals; throwing a financial lifeline to cash-strapped state and local governments; financial help for households facing eviction; money for schools: more money for COVID-19 testing; and of course - a payroll tax cut.

    SOURCE: Al Jazeera News


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