LATIMES.COM/BUSINESS WEDNESDAY, MARCH 11, 2020C5
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workers sent home without
pay or laid off because of the
economic slowdown would
get nothing. That would
include the workers most
vulnerable to virus quaran-
tines or workplace closures,
namely service workers
such as waiters and wait-
resses, hotel staff and office
cleaners.
Even for those still re-
ceiving paychecks, the
payroll tax cut would be
spread over the year via
weekly or biweekly pay-
checks, providing a mere 10
bucks or so a week for a
low-income household.
“Right now time is of the
essence,” Furman tweeted.
“I would much rather get
people money sooner.”
In 2011, the payroll tax cut
was seen by Obama and his
aides as an unpalatable
choice forced on them by
intransigent Republicans in
Congress. Obama sought to
extend the Making Work
Pay tax credit that had been
implemented in 2009 and
2010, which provided a maxi-
mum of $400 for single per-
sons and $800 for families.
The credit had been
pegged to 6.2% of earned
income and phased out for
singles earning $95,000 or
more and couples earning
$190,000. Extending the
credit to 2011, however, was
nixed by the new Republi-
can majority in the House of
Representatives.
The payroll tax cut “was
the best we could do at the
time given the political
constraints,” Furman notes.
“But it was far from optimal
then and would be even
further from optimal now.”
Making Work Pay suf-
fered from the same flaw as
the payroll tax credit — it
was dripped into household
budgets only paycheck by
paycheck. For that reason,
economists have found, its
economic effect was muted,
especially in comparison
with lump-sum stimulus
payments made in 2001 and
2008.
The Economic Stimulus
Act of 2008, for instance,
provided one-time govern-
ment checks of up to $1,200
for married couples, includ-
ing $300 per child. The pay-
ments were phased out
starting with household
income of $150,000 (for cou-
ples), but even low-income
households that owed no
federal tax were eligible for
at least $300, provided they
earned at least $3,000 dur-
ing the year.
Studies later found that
recipients pumped as much
as 90% of the payments into
the economy within three
months. By contrast, former
Federal Reserve Gov. Clau-
dia Sahm reports, many
taxpayers weren’t even
aware that the more gradu-
al benefits of Making Work
Pay existed and therefore
barely affected their spend-
ing.
“Stimulus that is not
seen or recognized by indi-
viduals is unlikely to affect
their sentiment,” Sahm
writes.
What’s most unnerving
about a payroll tax cut is its
potential to undermine
Social Security. The pro-
gram will receive nearly 90%
of its $1.1 trillion in revenue
this year from the payroll
tax, which is levied at a rate
of 12.4% of wage income up
to $137,700, split evenlybetween employer and
employee.
Using this income
stream as a tool to pump
stimulus into the economy
threatens to erode Social
Security’s position as a
unique government pro-
gram with its own revenue
stream, a tax dedicated to
its upkeep alone. Melding its
own revenue with that of the
federal government at large
facilitates no one’s goals
except those who want to
see the edifice pulled down.
That includes Trump,
who has spoken about
cutting “entitlements” such
as Social Security and Medi-
care benefits. He’s only
seconding threats made by
Republicans such as Senate
Majority Leader Mitch
McConnell (R-Ky.), who
portrayed those programs
as the cause of the federal
deficit, even after he en-
acted a multitrillion-dollar
tax cut for corporations and
the wealthy.
Sen. Joni Ernst (R- Iowa)
spoke last year of the neces-
sity of making cuts to Social
Security “behind closed
doors.” That was an ac-
knowledgment that cutswould be spectacularly
unpopular with the public.
But chipping away at the
program’s bedrock funding
under the guise of stimulat-
ing the economy is a neat
Plan B.
Nor would this be the
first time that Republicans
proposed raiding Social
Security resources for unre-
lated purposes. Republi-
cans up to and including
Ivanka Trump have been
pushing a proposal to pro-
vide Americans with paid
family leave — a benefit that
other developed countries
have given their citizens for
years — but requiring those
who take it to repay the cost
by delaying their Social
Security or accepting a
permanent reduction in
their benefits. In other
words, you could take time
off to care for a child or an
elderly parent, but only by
condemning yourself to a
shakier retirement.
Congressional Demo-
crats should know enough
to avoid touching Social
Security in this crisis.
There’s no mention of a
payroll tax cut in the co-
ronavirus response planproposed by House Speaker
Nancy Pelosi (D-San Fran-
cisco) and Senate Minority
Leader Charles E. Schumer
(D-N.Y.). It does include,
however, mandated paid
sick leave, increased unem-
ployment benefits, guaran-
teed free coronavirus testing
and treatment, and a sus-
pension of regulations that
would reduce access to food
stamps or other safety net
programs.
Social Security advo-
cates have been unanimous
in condemning any stimulus
proposal that would divert
Social Security’s revenue
stream. (They were op-
posed when Obama did it
too.) Their fear, which is
reasonable, is that restoring
the full tax would be more
difficult than cutting it in
the first place, leading to a
permanent hole in the pro-
gram’s income.
Reducing the payroll tax
to zero, as Trump report-
edly proposed, would have
an especially destructive
effect on Social Security by
placing its funding entirely
in the hands of Congress. If
you wish to assess the perils
of that option, consider howenthusiastic the GOP has
been about hobbling pro-
grams such as Medicaid,
food stamps, heating assist-
ance and Temporary Assist-
ance to Needy Families by
slicing their budgets. Take
the same step with Social
Security, and you can start
preparing its tombstone.
“Cutting the payroll tax
is not an economic gift no
matter how you wrap it,”
says Max Richtman, presi-
dent and chief executive of
the National Committee to
Preserve Social Security
and Medicare. “A payroll tax
reduction would provide
scant relief to working peo-
ple while destabilizing the
finances of Social Security.
There are better ways to
cushion the economic im-
pact of the coronavirus than
robbing Social Security of
much-needed revenue.”
In the Obama adminis-
tration, the Social Security
tax cut was made up, dollar
for dollar, out of the federal
Treasury. But as was pre-
dictable, critics of Social
Security used that tempo-
rary transfer to argue that
the program contributed to
the federal deficit. This is a
lie, however; by law, Social
Security can’t spend more
than it takes in from reve-
nues including the payroll
tax, interest on its nearly
$3 trillion in Treasury
securities and income
taxes charged on some
benefits.
The tax cut and general
fund payback were billed
originally as a one-time
sleight-of-hand trick, but
the tax cut ended up being
extended twice before it
ceased at the end of 2012.
There’s no reason to
return to this subterfuge
now. That’s especially true
given that it doesn’t serve
the people who need the
help the most, and that it
carries the potential to
knock a pillar out from
under our most important
and successful anti-poverty
program.Keep up to date with
Michael Hiltzik. Follow
@hiltzikm on Twitter, see
his Facebook page or email
michael.hiltzik
@latimes.com.Payroll tax cut would hurt Social Security
PRESIDENT TRUMP,shown with Treasury Secretary Steven T. Mnuchin, is suggesting a payroll tax cut as
a way to help with the economic effects of the coronavirus. But who would be helped the most?Evan VucciAssociated Press[Hiltzik,from C1]