A decade ago, when the U.S. economy was still sputtering back to life after a recession that now seems almost quaint, the idea of reducing the payroll withholding tax was controversial. Why? Because that tax funds Social Security, the biggest and most popular social program, and its long-term solvency was not guaranteed in the first place.
But when President Obama and Congress agreed to cut the withholding tax rate for employees from 6.2% to 4.2%, it was so seamless that few people noticed. That’s because it was a true reduction in the tax rate of the kind that can only be accomplished by legislation. When the rate went back up in 2013, there was little objection. That was seamless too.
What President Trump has done to the withholding tax is a mess. Rather than reducing it through legislation he has, unilaterally, issued an executive order deferring collection of a tax that is still on the books. Here’s how more than 30 business organizations, including the U.S. Chamber of Commerce, put it in a letter last week to the speaker of the House, the Senate majority leader and the Treasury secretary:
“If this were a suspension of the payroll tax so that employees were not forced to pay it back later, implementation would be less challenging. But under a simple deferral, employees would be stuck with a large tax bill in 2021. Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year.”
There is only one way in which this executive order is better than legislation: It can be undone as easily as it was done.
Rather than create a potential tax nightmare for working Americans in 2021, President Trump should rescind his E.O. and work with Congress on legislation to accomplish the goal he had in mind.
Sign up for Daily E-news
