Posted by on August 5, 2020 9:17 pm
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By Lewis K. Uhler and Peter J. Ferrara

 

President Trump and congressional Democrats are still battling over another big spending Covid-19 “bailout bill” that would add trillions to the national debt. But the best solution to reduce unemployment and get Americans back to work is not paying them more in unemployment insurance than they were making while working.

 

Rather, as Steve Moore and Phil Kerpen argued in the Wall Street Journal, the best solution is for Trump to bypass Congressional Democrats and their bottomless spending entirely. He should use his Emergency Powers and order the IRS to suspend collection of the payroll tax for the rest of this year. That would immediately increase take home pay by 7.65%, the proportion of wages currently taken by the payroll tax. And it would reduce the cost to employers of hiring workers back by the same 7.65% for the employer’s share of the tax. That would reduce unemployment without any increased spending at all.

 

This is the same authority Trump used earlier this year to defer the income tax deadline to July 15. Moore and Kerpen quote from Section 7508A of the tax code, which provides the Secretary of the Treasury, “authority to postpone the time for performing certain acts under the internal revenue laws for a taxpayer determined by the Secretary to be affected by a federally declared disaster [e.g. Covid]. Pursuant to Section 7508A(a), a period of up to one year may be disregarded in determining whether the performance of certain acts is timely under the internal revenue laws.”

 

Under this provision, President Trump could instruct the Treasury to stop withholding payroll taxes and put bonds into the Social Security and Medicare trust funds to continue benefit payments, Moore and Kerpen explain. President Obama did precisely during the 2011 financial crisis. Biden would be hard put to complain about Trump using this authority now. So would Speaker Pelosi, who called Obama’s tax cut “a job creator” that would give the economy “a boost”.

 

Further, President Trump should pledge to sign a bill after the election to forgive repayment of the suspended payroll taxes for those earning up to $75,000 per year. That way Democrats could not call it a tax cut for the rich.

 

Of course, Democrats would still insist on demanding additional outrageous spending for each of their many special interests, most importantly blue state pension obligations and reckless overspending with no relation to the pandemic.  The additional $600 weekly unemployment benefit (the perverse incentive not to work) is suspended under current law by this weekend. Replacing that with a payroll tax cut disconnects the last bargaining link the Democrats can use to drive even wilder spending.

 

If additional unemployment benefits are still needed, the Democrats can still join with Republicans to pass that, after the disincentive to work is removed and unemployment is sharply reduced below 10% on Friday.


 

Lew Uhler is Founder and Chairman of the National Tax Limitation Committee and the National Taxpayer Limitation Foundation (NTLF). He was a contemporary and collaborator with both Ronald Reagan and Milton Friedman in California and across the nation.

 

Peter Ferrara is Senior Fellow for NTLF, the Heartland Institute, and the FAIR Energy Foundation. He served in the White House Office of Policy Development under President Reagan and as Associate Deputy Attorney General of the United States under President George H.W. Bush.