Trump threatens to veto GOP relief bill unless it includes payroll tax cut that favors the rich

The payroll tax funds Social Security and Medicare. A "number of Republicans oppose" have pushed back against a cut

By Igor Derysh

Managing Editor

Published July 20, 2020 9:10PM (EDT)

Donald Trump holding bags of money (Getty Images/Salon)
Donald Trump holding bags of money (Getty Images/Salon)

President Donald Trump threatened to veto the Republican coronavirus relief proposal unless it includes a payroll tax cut, which would overwhelmingly benefit the rich and potentially cut funding for Social Security and Medicare.

Trump confirmed reports about his push to include a payroll tax holiday in an interview with Fox News that first aired on Sunday.

"I would consider not signing it if we don't have a payroll tax cut," Trump said, claiming that "a lot of Republicans like it."

"It's been proven to be successful and it's a big saving for the people. It's a tremendous saving and an incentive for companies to hire their workers back and to keep their workers," Trump later said during a Monday appearance in the Oval Office. "The payroll tax to me is very important."

Though a few Republicans, such as Sen. Ted Cruz, R-Texas, have expressed support for a payroll tax cut, a "number of Republicans oppose" the measure and have pushed back on its inclusion in the bill, according to The Washington Post.

"I have not talked to a single office that has expressed enthusiasm for payroll tax cut," Brian Riedl, a tax expert at the conservative Manhattan Institute, told The Post.

The payroll tax is a 7.65% tax on employee earnings and a 7.65% tax on employers that funds the Social Security and Medicare trust funds. While President Barack Obama temporarily cut the tax by 2% for workers in 2011, Trump wants a full temporary pause on the tax for both workers and employers, according to The Wall Street Journal.

"Trump's actions are a war on seniors," Nancy Altman, the head of the advocacy group Social Security Works, told CNBC. "He is insisting on threatening Social Security on which most seniors rely for their food, medicine and other basic necessities."

Republicans, who have raised objections over the rising federal deficit, are expected to include the proposal in their bill, according to The Post. A March estimate from the nonpartisan Committee for a Responsible Federal Budget found that eliminating the tax for eight months would increase the deficit by $840 billion.

Because the proposal is targeted at those still receiving paychecks, it would do nothing for the tens of millions of Americans laid off amid the pandemic.

"A payroll tax cut is exceptionally ill-suited for the current moment," Seth Hanlon, a tax expert at the left-leaning Center for American Progress, told Business Insider. "It's not a second best solution. It's not even the hundredth best solution. It's a policy that's designed to benefit people who are working. It benefits people who are earning more, and it doesn't do anything for people out of work."

The policy would largely benefit the richest Americans while providing most American workers with negligible benefits. An analysis by the Institute on Taxation and Economic Policy found that 65% of the benefits would flow to the richest 20% of Americans. For most Americans, the "benefits would arrive drip by drip," according to Michael Strain, an economist at the conservative American Enterprise Institute.

"That wouldn't do enough for households affected by the coronavirus, which are likely to need a sizable infusion of cash to meet necessary expenses," he wrote in a Bloomberg op-ed.

Worse, Republicans plan to add the payroll tax cut to their proposal while pushing for a cut to unemployment benefits for jobless Americans, according to The Post. The Republican plan may also require Americans to pay back the tax cut at a later date.

The legislation could also alter plans to send another round of $1,200 direct payments to Americans. That is expected to be coupled with a reduction to the $600-per-week federal unemployment benefits to $200 or $400 per week.

Republicans are also expected to reject desperate pleas for cities and states facing massive budget shortfalls due to a lack of tax revenue caused by stay-at-home orders. Instead, Republicans plan to offer local leaders flexibility on spending the $150 billion Congress allocated in March. The House had passed a bill which would provide $1 trillion in additional relief to states and cities.

The Republican bill is also expected to tie school funding to classroom reopenings. While the House plan would provide about $3 trillion in relief, the GOP proposal is expected to be valued at around $1 trillion.

"Unfortunately, by all accounts the Senate Republicans are drafting legislation that comes up short in a number of vital areas, such as extending unemployment benefits or funding for rental assistance, hazard premium pay for frontline workers, or investments in communities of color being ravaged by the virus, and many other necessary provisions," Senate Minority Leader Chuck Schumer, D-N.Y., said in a Monday letter to Democratic colleagues. "Democrats will need to fight hard for these important provisions."

By Igor Derysh

Igor Derysh is Salon's managing editor. His work has also appeared in the Los Angeles Times, Chicago Tribune, Boston Herald and Baltimore Sun.

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