Sorry, Reuters: Payroll Tax Cut Would Not Benefit Lower Income Workers the Most

Via NCPSSM | It’s crucial that the news media put President Trump’s harmful proposals for payroll tax cuts in perspective.  Many publications are doing a decent job of that, including the Los Angeles Times, CNBC, and MarketWatch. But Reuters stumbled in a May 19 article about recent comments by chief White House economist Larry Kudlow:

“A holiday, essentially a temporary tax cut, generally benefits lower-paid households the most,” Reuters reported, as if that were a widely accepted fact.  Payroll tax cut advocates like Kudlow may believe that eliminating FICA payroll contributions are a boon to the working class, but that doesn’t make it true. In fact, recent analyses suggest that lower-income households would realize the least benefit from a payroll tax cut, while high earners would reap a relative windfall.

As the Institution on Taxation and Economic Policy (ITEP) reported earlier this month…

“Nearly half of the benefits [of a payroll tax cut] would go to the richest 20 percent of taxpayers, meaning it would not be particularly targeted to those who need help.”

… while the Center on Budget and Policy Priorities observes:

“Cutting the employee share of payroll taxes gives the most help (in dollar terms) to higher earners, who are less likely to need the help or to spend most or all of the extra money.”

ITEP calculates that, with a 2% payroll tax cut, the average worker in the lowest 20% income bracket would receive only $200 in relief for the rest of 2020 while an earner in the top bracket would yield more than $4,000.

In addition to the obvious inequities, a payroll tax cut would do nothing to help the more than 30 million Americans who have lost their jobs since the pandemic began – or the many public service workers at all levels of government who do not participate in Social Security.

As in much of the media coverage of President Trump’s payroll tax cut proposals, the Reuters story does not even mention Social Security – which workers’ payroll contributions fund.

“The conservative leaning Tax Foundation has estimated that if the Trump administration held a holiday starting on April 1 that lasted through the end of the year, the government would lose out on $950 billion.” – Reuters, 5/19/20

It would be a lot more accurate to say that Social Security – and all the American families who depend on it – would lose $950 billion in much-needed revenue.  (If Congress takes no action, the Social Security trust fund will become depleted by 2035.)  But the Reuters story and others like it fail to make the link between payroll taxes and the program they were established to fund. Social Security is the very reason they exist.

That omission plays into the hands of President Trump, some of his advisors, and his allies in Congress who talk about payroll contributions as if they were ‘just another tax to be cut,’ rather than the lifeblood of America’s most successful social insurance program.

The Reuters article also takes for granted that Trump and Kudlow’s main motivation is “staunching economic pain caused by the coronavirus pandemic,” rather than undermining the earned benefits of retirees, people with disabilities, and their families by constricting Social Security’s revenue stream.  Payroll tax cuts will not relieve working people’s economic pain; they will exacerbate it by compromising the basic financial security that Social Security provides when Americans need it most.

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