Earlier this week, President Donald Trump proposed a payroll tax cut that his Treasury Secretary, Steven Mnuchin, said would serve as a stop-gap measure for those whose income has taken a hit, particularly as the coronavirus pandemic wields financial blows, shuttering businesses and upending income for millions of workers nationwide.
But according to a new analysis conducted by the Penn Wharton Budget Model (PWBM), the president’s payroll tax cut will cost $807 billion, more than the 2008 bailouts, which cost $700 billion. While an increase in employee wages would increase taxable income, the analysis found “the increase in federal income tax revenue, however, is not enough to offset reductions in payroll tax revenue” and that, “On net, the payroll tax holiday loses revenue.”
Most importantly, the analysis found that the proposal would not help low-income households or workers, those most likely to feel the financial crunch of the pandemic.
“Households in the bottom 20% of incomes — those households with the highest willingness to spend their tax savings — would receive about 2% of the total tax cut,” the study notes, adding that this would dampen “the policy’s stimulus potential.”
“Moreover,” the study continues, “only about 33% of this group would receive any of the tax cut, as many of the lowest-income households have neither wages nor self-employment earnings and thus pay no payroll taxes under current law.”
Earlier today, the president declared a national emergency over the pandemic, a move that came after receiving heavy criticism over the last week for appearing to downplay the social and economic impacts of the virus. The president denied there were any missteps in his administration’s handling of the crisis.
“I don’t take responsibility at all,” he said. “We were given a set of circumstances and we were given rules, regulations and specifications from a different time.”
The coronavirus has claimed 48 lives in the United States, according to the most recent count, and more than 5,400 lives worldwide.