CommentsPERSPECTIVE--It seems the nation needs a vaccine for bad decisions as much as it does to stop the spread of Covid19.
The executive order deferring the employee share of the 6.2% Social Security OASI portion of the payroll tax is wrong on a few levels.
To start with, it represents a typical tactic used by politicians to push problems to the future, where it will be up to other elected officials to resolve. I refer to this as the Wimpy Solution: “I will gladly pay you tomorrow for a hamburger today.”
State and local politicians use this approach to cover budget deficits. State Senator Bob Hertzberg’s latest proposal to allow the state to borrow against future taxes is an example of getting that hamburger today. We can call his plan the “Huggy Solution.” )
The Social Security OASI trust fund cash flow is expected to be exhausted by 2034. This deferral could make matters worse. It depends on whether or not taxpayers will have to repay it:
Section 4 of the order states:
The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.
And this statement is there because, while Presidents can defer payments, only Congress can authorize forgiveness.
If you are an employee, do you take the chance that the tax will be forgiven by Congress and sign up for the deferral?
There will probably be considerable public pressure on Congress to forgive, regardless of which party is in control.
But do you really want to roll the dice?
I wouldn’t.
Unlike interpreting a gray area of the Tax Code, where a reasonable argument could result in a favorable outcome for the taxpayer, the decision to forgive will essentially be political. So, how comfortable are you with making political predictions? Remember what happened in 2016?
Employers will also face a dilemma. They are responsible for collecting and remitting the payroll taxes. Will they be left holding the bag if forgiveness is not granted? How will it affect processing W2s?
It would be far more efficient for the federal government to extend the unemployment stimulus. The additional $400 per week (was $600) is not subject to payroll tax. However, there is the question of whether states will be able to cover 25% of the cost Trump says they should.
Overall, this is not an executive order; rather, ordered chaos.
It will take Congressional action to resolve.
And we will have a college football season, too.
(Paul Hatfield is a CPA and formerly served as President of the Valley Village Homeowners Association. He blogs at Village to Village and contributes to CityWatch. The views presented are those of Mr. Hatfield and his alone and do not represent the opinions of Valley Village Homeowners Association or CityWatch. He can be reached at: [email protected].)
-cw
