WASHINGTON – Several senior White House officials have begun discussing whether to push for a temporary payroll tax cut as a way to arrest an economic slowdown, three people familiar with the discussions said, revealing the growing concerns by President Donald Trump’s top economic aides.
The talks are still in their early stages, and the officials have not decided whether to formally push Congress to approve the cut, these people said, speaking on condition of anonymity because they weren’t authorized to disclose internal discussions. But the White House in recent days has begun searching for proposals that could halt a slowing economy.
Millions of Americans pay a “payroll tax” on their earnings, a 6.2% levy that is used to finance Social Security programs. The payroll tax was last cut during the Obama administration to 4.2%, as a way to encourage more consumer spending during the recent economic downturn. But the cut was allowed to reset back up to 6.2% in 2013.
Americans pay payroll taxes on income up to $132,900, so cutting the payroll tax has remained a popular idea for many lawmakers seeking to deliver savings for middle-income earners and not the wealthiest Americans. But payroll tax cuts can also add dramatically to the deficit and – depending on how they are designed – pull billions of dollars away from Social Security.
The payroll tax cuts during the Obama administration reduced taxes by more than $100 billion each year, but the Obama administration directed the lost revenue to Social Security programs, so those initiatives didn’t lose money. The cuts added to the deficit, however.
The size of the cut could equate to a bigger tax cut for many families than the 2017 tax law.
The Trump administration discussions about whether to pursue a new payroll tax cut have only begun in recent days, the three people said, and specific details about the design have not been reached yet.