Tax Deferment – A Good Idea?


“There are downsides to everything; there are unintended consequences to everything.

Steve Jobs

Yesterday, President Trump signed several Executive Orders and issued several Presidential Memoranda. The president’s four actions would extend unemployment benefits, provide a payroll tax holiday, defer student loan payments through 2020 and extend the federal moratorium on evictions. The effect of the payroll tax holiday action was to “defer” certain payroll taxes, if I understand correctly those covered by 26 U.S.C. 3101(a). I don’t mind putting in the qualifier about my understanding because as of this writing there is a lot of head-scratching going on as to if he is empowered to do any of this, whether or not there will be court challenges, how would it all be implemented etc. etc.

When I first heard this I thought: Well if Congress can’t get past their partisan gridlock to do something in these difficult times, maybe the President DOES have to “grab the bull by the horns” as they say. And if as he says that failure by Congress was all related to those intransigent spend-thrift Democrats, a pock on their house. Don’t we all want to hear about taxes being reduced? But I did a little more thinking about it and read some of what the President has pledged if he is re-elected and I am concerned, yes, even alarmed. By the way, I am NOT taking sides on which of our polarized parties in Congress screwed this up. I am sure there is probably plenty of blame to go around on that.

But getting back to the reduced tax part of all this, I started to think back about the times in my checkered past when my part of the payroll process was to be the PAYER not just the RECIEVER. And by the way those were not all pleasant memories. There were many occasions when I was the LAST one paid on pay day and many times when I WASN’T paid on pay day!! That wasn’t all bad in retrospect, it gave me a healthy respect for what employers contend with. For those of you who have NOT had the privilege of being responsible for payroll, or more likely just haven’t thought about it, there are generally four kinds of “payroll taxes” that are paid at least in Minnesota.

• Social Security or I guess more officially, Old Age Survivor and Disability Insurance (OASDI) payable under the Federal Insurance Contributions Act (FICA). This amount is with some exceptions, 6.2% of gross pay withheld from the employees check and a match paid by the employer of 6.2%.
• Medicare, also payable under FICA, a withholding of 1.45% from employees and a match from the employer of the same amount.
• Federal Unemployment Tax Act (FUTA) – This is paid by the employer only and after credits normally available its rate is 0.6%.
• State Unemployment Tax Act (SUTA) – This is paid by the employer only and the rate is determined by the state based on claims history.

Interestingly the Executive Order covers ONLY the OASDI segment. With all the flak flying around these days let me be clear. OASDI contributions by employees and employers ARE THE PRIMARY SOURCE OF FUNDING FOR SOCIAL SECURITY. Treasury Secretary Mnuchin advises that if these dollars are PERMANENTLY deferred, the President will affect a transfer from the Homeland Security budget to make up the shortfall. I sure would hate to be a payroll officer tomorrow morning because I am not sure what I would do. If they do not withhold and or set aside funds of their own to pay these deferred costs in December, what happens when they come due? Are they going to send a bill to employees for the deferred amounts or make one huge deduction on the first check in January? WOW, that doesn’t seem like it is going to go well. But setting aside the fog about this “deferment” issue, the President’s statements AFTER the signing are much more troubling to me. The President pledged that if he is re-elected, he will make the deferment PERMANENT, as in he will eliminate the funding mechanism for Social Security. Let me say that again, he pledged to eliminate the funding mechanism for Social Security. I think that is about as plain as anyone can make it. If the funding source for a program is eliminated does not that really make it impossible to have the program?

Now, I have a hard time believing that Congress is going to agree to eliminate Social Security, but then again who knows how all of that would play out? I believe that there are some in our great country who really could get by quite nicely without Social Security when they retire. Certainly President Trump could, if we are to believe he is the multi-billionaire that he professes to be. But I believe that the data shows that most retirees depend on Social Security for a significant part of their retirement budget, to say nothing of the disabled and dependent people who are also covered. This just all seems WAY TOO RADICAL to be true. But I have stopped saying that radical things cannot happen in our country. In fact, radicalism seems to be the trend these days. This concerns me greatly. Let us not gloss over the “tax cut – tax deferment” language that is being tossed around here to the point that we forget we are talking about eliminating the bedrock plank of our social safety net for the country.

4 thoughts on “Tax Deferment – A Good Idea?”

  1. Again, a remarkably accurate and important assessment of the President’s actions, albeit questionable if they’re actionable and enforceable. Too many convenient gaps
    in the actual effects, so “stay toooned” as they say.

    And thanks too for pointing out the peril to Social Security. I would certainly agree with you that there are those of us who can manage without all or some of our Social Security benefits, certainly NOT those on disability or other aspects of it that are the bedrock of their income. It’s a conundrum how to solve the problem and no willingness on the part of Congress to address it given the dysfunctional state of it.

    Well done all together, thanks!

    1. I have read and listened to the President’s comments after the signing ceremony. I wonder if he didn’t mean that just the TEMPORARY cuts to the FICA payroll taxes would become permanent if he were re-elected, as in just the three to four months of cuts and thereafter the payroll tax would be reinstated. That would seem more reasonable, again the cutting off of the funding source for Social Security would seem just TOO radical. But doggone it, that is NOT what he said. It’s hard to GUESS what he means sometimes, despite what he says.

  2. Thanks, Craig! Thoughtful as always, though limited as you admit by the fact that it’s hard to be thoughtful about something that makes no sense. Unless the Democratic negotiators had capitulated to the Republican position, thus giving the president a crowing point, this was his preferred outcome from the start. Even if he does not have the power and they are all overturned and ineffective, he will claim that he and not his opponents were on the side of the distressed and unemployed. Never mind that neither he nor his enablers have a clue how to implement it, so they cannot advise payroll managers on what to do.

    Mr. Trump is desperate to be president beyond January, whether by hollow promises, voter suppression, international interference, attempting to delay the election or anything else he or his handlers come up with. It has nothing to do with the public good. It has nothing to do with the financial security of the unemployed or current or future retirees. It has nothing to do with anything other than his desperate need to be thought highly of and his equally desperate desire to avoid prison, once the severely stretched Justice Department policy on not prosecuting a sitting president no longer applies (state courts probably scare him even more). That policy was created to prevent politically motivated, trumped up charges from being brought by opponents to pester and harass people whose only crime was being in the other party. It was never intended to protect an obvious criminal from the consequences of his actions just because he happened to be in that elected position. I am heartened by the Lincoln Project, Republicans Opposed to Trump, Vote Vets and others who are standing up and saying that the fact that he claims to be a Republican does not outweigh his clear and present danger to our Constitutional Republic. Even so, it will be important for everyone to vote, even if it means putting their health at risk to go to the polls. He and his enablers need to be beaten by such a great majority in the popular and electoral college vote that there is no question that he is beaten. I fear that he will continue to try to do as much damage as he can on the way out, but I pray we survive and can start rebuilding our country soon.

    1. Jon, as I said before your comments are lots better than the original posting!! After I wrote the original post I started to think that I had misinterpreted his comments and that what he meant to say was that if he were reelected the THREE-MONTH deferment amounts would be permanently eliminated and the FICA payroll taxes would be reinstated. But listening and reading again, I don’t think that is what he said. I think most people are assuming that he is NOT proposing to PERMANENTLY eliminate the funding for Social Security or their would be a bigger uproar. BUTTT the President says so many outrageous things sometimes I think we are becoming immune and what was at one time thought to be totally inappropriate political discourse is now accepted as the norm.

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