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How does Trump's payroll tax cut plan compare to Obama's

Megan Henney

President Trump’s proposed stimulus package to cut payroll taxes through the end of the year would cost an estimated $800 billion, dwarfing the size of President Barack Obama’s stimulus package passed more than a decade ago at the height of the financial crisis.

Trump pitched temporarily eliminating the payroll tax earlier this week to insulate the economy from the coronavirus, which causes a disease called COVID-19. The virus has caused volatility in the stock markets and forced the Federal Reserve to make an emergency rate cut, the first time the U.S. central bank has done so since the financial crisis.

According to a new analysis published by the University of Pennsylvania’s Wharton School, Trump’s proposal would cost the government $807 billion if it were implemented from the beginning of April through the end of December.

There has been consideration of eliminating it for three months, through the fall, through the calendar year or permanently, sources told Fox News.

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Currently, all employees and employers pay a 6.2 percent payroll tax on wages capped out at $137,700. Right now, an employee earning $50,000 per year would pay $3,100 in payroll taxes. That money goes toward specific programs like Social Security, health care, unemployment compensation and workers’ compensation. Workers also pay a Medicare tax of 1.45 percent

Workers who earn more than $200,000 individually, or $250,000 if they are married and filing jointly, pay an additional 0.9 percent Medicare tax. Individuals who work for themselves pay 12.4 percent toward Social Security and 2.9 percent for Medicare.

In 2011 and 2012, the Obama administration cut payroll taxes by 2 percentage points to 4.2 percent. It cost about $800 billion over the course of several years, according to the analysis.

Still, economists are divided over the effectiveness of a payroll tax on stimulating the economy.

The proposal has flatlined among Democrats, who suggested it would do little to help Americans who need the most financial help.

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Rep. Don Beyer, D-Va., said on Tuesday that the idea doesn’t help people who have lost their jobs; and if they are making less than $25,000, the cut is “not enough to really do anything.” For instance, someone who lost their job, or whose paycheck mostly comes from tips, won’t see a big boost in their pocketbook. Conversely, richer Americans will receive a bigger paycheck.

“If you’re with so many Americans making $25,000 or less, then it ends up being like $10 a week,” Beyer said.

According to the analysis, a payroll tax cut, which is gradually distributed over the course of a year, has little impact on lower-income households.

“Households in the bottom 20 percent of incomes — those households with the highest willingness to spend their tax savings — would receive about 2 percent of the total tax cut, limiting the policy’s stimulus potential,” it said.

In the short-run, Wharton estimated it would have little impact on the economy. By 2030, it’s estimated to reduce the size of the economy by 0.1 percent and 0.2 percent in 2050 because of additional debt.

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