Coronavirus response: Why Democrats are ‘lukewarm’ on the idea of a payroll tax cut

On Monday, after a historic selloff in the markets, President Trump appeared at the White House and teased a payroll tax cut. He said they would soon “talk about various things that we're doing economically — they'll be very major — including, obviously, the payroll tax cut.”

The idea landed with a thud among Capitol Hill Democrats whose support Trump would need to make it happen.

Rep. Don Beyer (D-VA), the Vice Chair of the U.S. Congress Joint Economic Committee, noted Tuesday that the idea doesn’t help people who have lost their jobs; and if they are making less than $25,000, the cut is “not enough to really do anything.”

Asked by the Hill if the idea was dead on arrival on Capitol Hill, Rep. Gregory Meeks (D-N.Y.) said: “I think so.”

Andres Vinelli, the Vice President of Economic Policy at the Democratic-leaning Center for American Progress, came on Yahoo Finance’s “The Ticker” to explain why the idea hasn’t garnered much Democratic support.

“I think the support will be lukewarm,” he said. “What we need now is something that is big, that is immediate and it targets the right people.”

Trump has not shown many signs of changing his approach. In fact, he doubled down by pushing for an elimination of the payroll tax through the end of 2020. The president is fighting for a "temporary payroll tax cut holiday which I think he would prefer to last through the end of the year," director of the National Economic Council Larry Kudlow told reporters on Tuesday.

The case against it

Vinelli notes that that idea “will leave a lot of people who are very vulnerable out,” and adds, “I think that there are better solutions out there.”

Beyer offered a fuller case against it: “Part of the dilemma with the payroll tax cut is that if you’ve lost your job, or you’re in the gig economy, or many other things, [then] you’re not going to get anything. Or if you’re with so many Americans making $25,000 or less, then it ends up being like $10 a week,” he said.

Later in the day, Beyer went into self-quarantine after learning he had had contact with a friend who later tested positive for COVID-19.

Senate Finance Committee Ranking Member Ron Wyden (D., OR) added in a statement that “a payroll tax cut can be an effective tool, but it’s not the best answer in this case. A payroll tax cut would do little to help workers without paid sick days or those who have lost shifts and tips.”

A group focused on expanding Social Security benefits zeroed in on the costs of cutting the taxes which funds the program. Nancy Altman, president of Social Security Works, said in a statement that the idea is a “Trojan Horse attack on our Social Security system, which will do nothing to meaningfully address the crisis at hand.”

Asked about the loss of revenue to the federal government that a payroll tax holiday would entail, Kudlow said, “you know, the payroll tax holiday is a bold move and this is a bold president.”

Speaker Nancy Pelosi and colleagues are reportedly drafting their own stimulus plan, which is unlikely to include a payroll tax cut.

Pelosi recently argued that cutting payroll tax is too broad a measure and ideas should be focused on those actually impacted by COVID-19. “We’re not talking about massively saying we’re going to have family medical leave, we’re saying if you are affected by the coronavirus,” you should get help, she said of the emerging Democratic plans on Monday.

A push for paid sick leave and even direct payments

The Democratic plans — when they are announced — will likely include economic measures focused on things like paid sick leave and enhanced unemployment insurance. In a statement Sunday, Pelosi and Chuck Schumer, the leader of Democrats in the Senate, said those measures would “prioritize the health and safety of American workers and their families over corporate interests.”

“We need to guarantee that people can stay home and still receive a paycheck, not only to put money into people's pockets, but also to ensure that people do not show up at work while sick,” says Vinelli.

Last week, Senate Democrats did introduce a bill focused on sick leave. The bill would require employers to allow workers to build up a bank of paid sick leave and also provide 14 days immediately during any public health emergency like coronavirus.

A more ambitious idea would be some version of direct payments to Americans. “Among the many things that we must consider to get the stimulus going again, direct payments will at least be part of that” said Congressman Beyer.

Vinelli added that “the IRS could cut the check for everyone very quick, that would be a cash infusion for households that need them very much and that's something that was done after the financial crisis and it was very effective.”

A voice in favor of direct stimulus has been Jason Furman, who was chairman of the White House Council of Economic Advisers during the Obama administration. He he wrote on Friday in support of direct payments of $1,000 to every U.S. citizen or taxpaying U.S. resident.

As advocates of the idea like to note, President George W. Bush signed a bill during the financial crisis of 2008 that cut checks of $600 to most individual taxpayers.

Trump vs. Pelosi

Of course, the different ideas could eventually both be included in any bipartisan bill. Trump, for his part, tweeted on Tuesday, mocking Democratic questions about whether a deal will get done this week. He also sent around a video thanking just the Senate Republicans for the recent $8.3 billion spending bill that was was signed into law on Friday to fund the U.S. response to the coronavirus outbreak.

The measure, of course, was also passed through the Democratic-controlled House of Representatives last week with a vote of 415-2.

Ben Werschkul is a producer for Yahoo Finance in Washington, DC.

Read more:

Washington debates ‘a big coronavirus stimulus’

Coronavirus response: Breaking down the $8.3 billion emergency spending bill Trump signed

Coronavirus outbreak could easily tip US into a recession: Goldman Sachs

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