As the economy continues to fall, lawmakers are looking for new solutions. One such option towards economic relief and potential growth is cutting the Payroll Tax. This is in response to some of the hardships that we continue to endure while we limit our time outside the home.
The unemployment rate is up to 15% with at least one White House advisor warning that the number could increase to 20%. To point out the severity of these numbers, during The Great Depression, unemployment reached 25%.
This is the economic catastrophe no one saw coming. Lessons learned from the housing market collapse in 2008 had Americans and lawmakers focused on preventing an economic downturn like the one we already lived through.
Instead of the housing market rupturing, we are faced with biological hurdles, one that we were not prepared for. We’ve become reactionary. Our country’s leaders offer innovative solutions to fix the economic calamity that has resulted from COVID-19.
The first solution presented and passed was to send cash to struggling Americans in hopes that it would encourage spending. Money received and money spent to stir the economic pot that had become stagnant. It was a robust package with student loan relief, a small business rescue plan, and increased unemployment benefits.
As markets continue to topple, conservative lawmakers have expressed concerns about directly injecting more cash to stimulate the US economy.
A New Stimulus Package
On May 16, 2020, the U.S. House of Representatives passed a $3 trillion coronavirus relief package that would do just that: more aid to state and local governments with a second round of $1200 payments to taxpayers.
Though this bill is highly unlikely to get passed in a Republican-controlled Senate, a payroll tax cut is being optioned as a way to bolster the economy without adding to our debt.
Payroll tax is separate from federal income tax, Social Security, and Medicare. Cutting this tax is being positioned as having a two-fold reaction. Fewer payroll taxes translate into more money kept by business owners. This money, potentially, could be reinvested back into the company or into human capital like more employees.
Also, this could lead to employees having an increased amount in their paychecks.
Unlike the $3 trillion stimulus package, a payroll tax cut is an indirect way to give Americans more money without having to directly give it to them. So why hasn’t this idea become something more substantial?
The biggest impediment here is that Payroll Taxes make up almost all of this country’s Social Security revenue. In 2019, according to the Social Security Trustee Report, Payroll Taxes provided $805 billion of Social Security proceeds. Those in favor of a second stimulus package may point out that to give Americans relief through a Payroll Tax cut, it would be at the cost of others who rely on it through Social Security.
The one constant in all of this is that taxes can shift quickly and without warning. Payroll services like PayWow take this burden and shoulder it so that you don’t have to. Following tax law is a full-time job. As a business owner, you don’t have the bandwidth to take on more responsibilities. Allow PayWow to handle this aspect of your business for you.