With all the rest of the news, it is easy to forget that the President’s proposal to delay the payment of social security contributions came into force on 1 September.
Specifically, for employees earning less than $104,000, employers could stop withholding 6.2 percent of the employee’s share of social security taxes until the end of the year. Of course, employers will have to recover these deferred taxes from their employees at the beginning of 2021.
The proposal is a bad idea on several fronts.
– First of all, those who are lucky enough to keep their jobs are those who need financial assistance the least.
– Second, people whose employers take this step will see their taxes increase significantly next year.
– Thirdly, if the employee leaves, the employer may be liable for unpaid taxes.
But the real problem is that in this crazy world, it makes no sense to waste one of the good things. The social security program not only provides a stable income for pensioners and people with disabilities, but it also provides a safety net for older workers who do not want to go back to work or who cannot find work because of the virus. This program is too important to play games.
In a way, one might say, “What’s all the fuss about?” The consensus was that most employers would not participate in this voluntary initiative. They’re anxious to explain it to their employees and explain what it will cost them if they have to pay it back in the end. (It is interesting to note that the executive branch of the federal government suspends withholding taxes on wages for eligible workers).
The problem is that the deferral of payroll tax could pave the way for a permanent reduction in this tax. The President has repeatedly advocated a reduction in payroll taxes, but this has not generated much enthusiasm in Congress. Critics fear that Congress will turn this extension into a permanent tax cut.
Given the lack of social security funding, the discussion should focus on how to raise additional revenue – not on how to cut a proven source of program support. And proposals involving a shift from payroll taxes to general revenues would jeopardize the future of the program. For decades, earmarked payroll taxes have protected social security from annual budget decisions.
These concerns may be why Democrats are working to cancel the payroll tax deferral program. Their weapon of choice is the Congressional Review Act, which allows Congress to override administrative “rules”. The executive branch was able to unilaterally adopt the deferral plan because, under the tax code, the Treasury Department can defer tax deadlines in the event of a disaster.
As a first step toward canceling the deferral, some Democrats are asking the Government Accountability Office to assess – by September 22 – whether the plan is large enough to be able to act under the Congressional Review Act. Is the three-page directive on wage tax deferral issued by the IRS essentially a “rule”? If it is considered a rule, the Congressional Review Act gives Congress the option of overturning it by way of a joint resolution.
Overall, the veto on the stupid tax deferral plan may not matter so much. But drawing attention to any attempt to undermine the funding of the social security program is time well spent.