President Donald Trump says the next coronavirus relief bill in Congress must include payroll tax cuts. Yahoo Finance's On the Move panel discusses how that would impact workers.
JULIE HYMAN: Word on the street, where we check in with our panelists, find out what stories they are watching. Rick, stimulus obviously is a big topic. But there might be something in there that the Democrats don't quite want. What? A payroll tax cut from President Trump?
RICK NEWMAN: Yeah. The fight is officially underway now. Congress will be back to start working out this plan. And it's become apparent we need more, probably by the end of July, when some of these measures expire.
So Trump has now said he insists that there is a payroll tax cut in whatever this legislation turns out to be. I don't think he's going to get it, honestly. And the reason is-- so he wants to cut the payroll tax, which would mean everybody's paycheck is a little bit bigger. But that only helps you if you're getting a paycheck. If you're unemployed, a payroll tax cut doesn't help you at all.
And, of course, it would also help companies, because, presumably, their portion of the payroll tax would go down as well. So you'd have both workers and their employers paying less.
But let's remember what those payroll tax cuts finance. They finance two things, which are Medicare and Social Security. The numbers are already pretty grim about Medicare in particular, which could start running out of money as soon as 2023 by some estimates. So if you reduce the funding for Medicare even more, you could make the funding problem even more acute there.
But we're going to have a fight over this. Trump says he won't sign it without the payroll tax cut. Mitch McConnell says there has to be a liability waiver for businesses. The Democrats say there has to be tons of funding for cities and states and for schools.
So the only way you resolve these types of things, when everybody insists on something, is you put it all in there, which means we could see another bill adding-- who knows-- $1.5 trillion to the federal debt-- or more. It could be even more than 1.5.
- Rick, I've seen something bandied about online about just providing continuous stimulus to individuals rather than a payroll tax. What-- what do you think the odds of something like that passing are at all? I mean, it was already a huge deal to get the original $1,200. And, I mean, yeah, when you're talking about people out of work for this long, that's nothing.
RICK NEWMAN: Yeah. And this-- remember, there are several forms of this. There was the one-time check that just went to a lot of taxpayers for up to $1,200. And then there is the additional unemployment insurance, which is quite generous-- $600 a week in addition to what you might be getting at the state level. Now, that ends at the end of July. And the $1,200 was a one time thing.
So part of the thinking here is that you could just put out this type of stimulus on an automatic basis. So you just-- you would establish a schedule. And then it would just be automatic. So you could link it to the unemployment rate in a state, for example. So you might get a certain level of additional unemployment insurance if the unemployment rate in your state is above 10%. It could come down at 8%. It could come down at 6%, and so on.
That would free Congress from having to vote on this one time after another. And there are other types of stimulus measures that are automatic. They're called automatic stabilizers. So in principle, it's a good idea.
I mean, there is some opposition and some at least anecdotal evidence to the-- that people are-- people are making more from unemployment insurance than they were making in their jobs or than they would be making if they went back to work and that this might be a disincentive to go back to work.
So my guess is they're going to continue the unemployment plus up but probably at some level below $600. And it might sort of be graduated so it phases out over time.