Lawmakers and some taxpayers will face a year-end mess because of an ill-advised executive action earlier this year by President Trump, but that doesn’t mean Congress should “fix” the mess.
Trump’s action in August allowed, but did not require, employers to stop collecting the 6.2% Social Security payroll tax from workers until the end of this calendar year. The move was nominally intended as a form of coronavirus-related economic relief, although it looked more like a Trump bid for votes than like a true relief effort.
The immediate problem begins with the fact that those taxes were not forgiven, just delayed. Most employers found the administrative hassle to be not worth the effort, so not many, aside from the federal workforce, participated. This created a situation where those few workers who did enjoy the payroll-tax holiday will be forced, under current law, to pay the taxes anyway in January, on top of the ordinary payroll taxes they will owe on new earnings. Even though those workers already will have enjoyed what is in effect a no-interest loan, they will feel like they are being double-taxed.
That’s why some in Congress want to somehow “fix” the “problem” by finding a way for those workers to avoid paying the taxes that were temporarily suspended. Yet, it is hard to let those taxes be forgiven entirely while most of the American workforce still had payroll taxes withheld and thus never benefited from the “holiday” in the first place. Furthermore, any payroll taxes that are forgiven will further erode the on-paper “trust fund” for the Social Security system, thus hastening the day when Social Security, for accounting purposes, goes bankrupt.
For all those reasons, Trump’s action was a terrible idea. In today’s terminology, it was no more than “virtue signaling,” pretending to offer relief (and only minor relief, at that) while actually doing nothing more than creating a bigger problem down the road. It also furthered a deleterious trend toward presidents acting as an authority until themselves, rather than working through Congress within the intended constitutional design.
Nonetheless, not all so-called problems merit solutions. This simple fact remains: The workers now facing double-withholding in January did benefit from having no Social Security taxes withheld for four months. It was a no-interest loan, and they were so informed at the time. They received that temporary advantage, while other workers didn’t. They do still owe the money to the government, and if they spent it on something else, that was their choice. Their choice and their fault.
And even after “double withholding” for several months starting in January, those workers still will be at least slightly better off, in real terms, than other workers who enjoyed no payroll-tax holiday. With inflation rising, the taxes they will pay next year will be worth less than the taxes they avoided for the past four months.
It is long past time for the U.S. government to stop absolving citizens of personal responsibility. Obligations are obligations. Taxes deferred are not taxes eliminated. Loans accepted remain loans, not gifts. (College students, by the way, take note.) The government isn’t Santa Claus.
The proper response for Congress now is to do nothing. The proper response for employers is to spread out the collection of the back-owed payroll taxes, to reduce the immediate burden. Thus, for instance, rather than collect double payroll taxes for four months, perhaps they can collect tax-and-a-half amounts for eight months.
Congress, though, has more important things to do. If people are angry at what appears to be double taxation, the fault is the president’s. Blame Trump.
