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Trump solo act on payroll tax cut could lead to big bills later

Laura Davison
Bloomberg

President Donald Trump said he is “talking about” doing a payroll-tax cut through an executive action, but doing so could result in hefty tax bills for employers later if the idea doesn’t get mired in legal challenges before then.

Trump discussed the possibility Monday after Stephen Moore, an informal economic adviser to the president, wrote about the idea in a Wall Street Journal column.

President Donald Trump arrives to speak at a signing ceremony for H.R. 1957 -- “ "The Great American Outdoors Act," in the East Room of the White House, Tuesday, Aug. 4, 2020, in Washington.

The point of the executive action would be to bypass Congress, which has resisted Trump’s call a reduction in the levy for Social Security and Medicare. But the president alone can’t cut taxes, so the move would rely on him delaying the due date and hoping Congress forgives the obligations before they come due. The executive branch has authority to delay tax due dates for as long as a year during a declared disaster.

That’s a risk for a legislative body known for waiting until the last minute, even when there are big economic consequences at stake. The most recent example is the current debate over supplemental unemployment benefits that expired last week.

“Nobody thinks a payroll tax cut makes sense. That was soundly rejected by Congress,” said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. “To go through contortions to cut payroll taxes through an executive order makes the whole strategy even uglier.”

Next Congress

Any decision on completing Trump’s would-be, roundabout tax cut would be up to the next Congress – both houses of which could be under Democratic majorities. And even the Republicans currently in control of the Senate aren’t enthusiastic about his plan to use executive power to circumvent the legislature.

“The point is what does the law allow?” Senate Finance Committee Chairman Chuck Grassley said Monday. “The only tax policy that is really any good is long-term tax policy.”

It’s unclear whether Trump even has legal authority to require employers to hand over the tax-cut savings to their employees. Employers are required to withhold and submit payroll levies on behalf of their employees. That makes them more likely to hang onto that money so they aren’t stuck trying to get it back from employees if the bill comes due.

“I don’t know why an employer would hand over the taxes, because the employer is going to be on the hook,” said Andy Grewal, a tax and administrative law professor at the University of Iowa.

In that event, many employees wouldn’t even see relief, because the money wouldn’t ever have reached their paychecks.