Monday, April 20, 2020

Why the Current Call to Suspend the Payroll Tax is Just a Shell Game

Steve Forbes and Arthur Laffer are out with an op-ed in The Wall Street Journal calling for a suspension of the payroll tax:
The best economic idea we’ve heard in response to the coronavirus crisis is a payroll-tax suspension. President Trump restated his support for it at a recent press briefing, and for good reason: It would reward work and production rather than the growth of government. Republicans should rally around the idea as the centerpiece of their next economic revival plan.
The plan we recommend would cancel all payroll-tax collections from May 1 to the end of the year. This would suspend the Social Security and Medicare tax, known as FICA, which takes 7.65% from a worker’s paycheck, with another 7.65% paid by employers, up to $137,700 of income. Self-employed Americans, usually socked with the full 15.3% payroll tax, would also find relief.
I am all for tax cuts but without an equal amount in government spending, this is just shifting a government burden rather than eliminating it.

Forbes and Laffer estimate the tax cut would free up $800 billion, but without spending cuts, this would mean another $800 billion the Treasury would have to borrow, surely the most of which would be monetized by the Federal Reserve. That is, it would mean even more money into the system which would put even more upward pressure on prices.

Forbes and Laffer need to re-visit their case and call for spending cuts. Otherwise, they are just advocating for an inflation tax shell game.



  1. While I absolutely know they have to cut spending, they just aren’t going to. And they are printing and monetizing debt as fast as they can, so give me the payroll tax relief. This would save my business so much money it’s crazy. $480,000 average in past years. Maybe not so much this year since so much of our work is lost, but I hate paying it. So I welcome a suspension of it. I just never thought they would because employees would get used to keeping all their income, and wouldn’t be too happy when they bring it back, which is good too.

  2. Even though no one knows what the limit is, there IS a limit to the amount of money they can print without running into problems like price inflation, currency & treasury weakness and credit downgrades.

    So, tax cuts without corresponding spending cuts are still a positive as it takes us closer to the limit.