The Payroll Tax Issue -- November 28, 2020

If I had to name the most under-reported, most important (okay, most interesting, if not most important) story facing Congress right now, it's the Trump-deferral of payroll taxes (Social Security).

Look at the lede on this story in The WSJ, it's loaded with land mines:

WASHINGTON—President Trump’s decision to defer payroll taxes until the end of the year is leaving challenges for lawmakers to manage after he leaves office in January, and they haven’t figured out what—if anything—to do.

Members of Congress in both parties weren’t keen on the August executive action, which let employers stop collecting the 6.2% Social Security payroll tax from many workers in the final four months of 2020. The move was meant as a form of relief during the economic slump caused by the coronavirus pandemic, but few employers stopped withholding.

That created a predicament for Congress. Employees whose payroll taxes temporarily shrank will face double withholding starting in January, which could pinch households that haven’t planned for it.

Doing nothing could cause harm for those workers, but helping only them could be unfair to others whose taxes continued to be withheld.

“No one will be happy no matter how that gets resolved,” said Mark Mazur, a former Obama administration official who now directs the Tax Policy Center. “It’s kind of like a no-win thing.” 

Mr. Trump couldn’t get Congress to cut payroll taxes, so he used the administration’s ability to defer tax deadlines after a disaster to delay payments of the employees’ portion of Social Security taxes. He promised that if he won re-election, he would push to turn that delay into a real tax cut.

The government offer applied to people making $104,000 or less, who could have as much as $2,149 in taxes deferred. 

But most employers balked, wary of potential complexities and costs of deferring the tax and arguing that the deferral amounted to little more than a short-term, no-interest loan.

“President Trump was waving his arm and saying don’t worry about it. You do worry about it,” said Rep. Richard Neal (D., Mass.), chairman of the tax-writing House Ways and Means Committee.

Official figures aren’t available yet, but payroll processor Paychex Inc. said take-up has been very low. 

The one big exception—which could create pressure for Congress to act—is the federal workforce, including many members of the military. Mr. Trump required executive-branch employees to participate. [A lot of military folks, I understand, voted for a Democrat this time around.]

Lawmakers, particularly those from the Washington area, support legislation to let employees decide whether their taxes can be deferred. As the weeks tick by toward the year’s end, that becomes less feasible.

Based on what Washington always does, this is how it will play out:

• Congress will kick the can down the road until Janet Yellen has been sworn in and allowed several months to express an opinion based on internal polling
• in the meantime, Congress will extend the program on a voluntary basis with tea leaves suggesting they will eventually forgive what amounts to a short-term interest-free loan.

In fact, there could be a huge compromise in the works: forgive this short-term interest-free loan which mostly benefits the US military member in exchange for a $50,000-college-debt-forgiveness based on income.

By the way, I have no problem with the latter: a forgiveness of a $50,000-college-debt-forgiveness plan paid for by an "elite" tax on the Hollywood movie industry (to include actors) and an "elite" tax on professional athletes who claim to live in states with no state income tax. 

According to the IRS, payback of the taxes deferred:

• 50% by the end of 2021;
• the remaining amount by the end of 2022

The story said that a "typical" deferral totaled about $3,000 (the actual number was less but I wanted to round up). If so, then 50% of $3,000 is $1500 divided by 12 months = $125 additional withholding each month for the next two years. That's a fair amount of additional taxes for blue-collar workers. 

$3000 over nine months of deferral = $333/month extra money for the military member.

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The Vaccine Poll Is Closed

The vaccine poll at the sidebar at the right is closed in which we asked "how soon will we see universal Chinese flu vaccination available in the US?"

• by the end of the year, 2020: 18%
• by the end of January, 2021, one month later: 22%
• by the end of 1Q21: 25%
• by the end of 1H21: 35%
  

"Universal" was defined as you and me could wander down to the local drugstore without an appointment and get the flu shot that would be covered by personal insurance with US government being the insurer or all resort. 

By the way, all indications are that all Chinese flu vaccines are a two-dose deal separated by six weeks, or thereabouts. It looks like the best regimen may be a half-dose followed by a full dose.