President Donald Trump proposed eliminating federal payroll taxes altogether for the rest of the year, according to a report from CNBC Tuesday.
The proposal would include eliminating both the employer and employee payroll taxes on Social Security and Medicare, according to the report.
“There was also discussion of making the payroll tax rollback permanent,” CNBC reported.
The Social Security payroll tax is 12.4 percent on the first $137,700 of wages. It is officially split between employees and employers, although most economists consider the entire amount to be a tax on worker earnings. Self-employed workers pay the full amount themselves. The Medicare payroll tax is an additional 2.9 percent levy on all wages, also split between employees and employers, with no cap. Top earners pay another 0.9 percent Medicare surtax.
When CNBC asked about the potential cost of a payroll tax cut, the official reportedly pushed back and asked why there is always a focus on the cost of tax cuts.
Most American workers pay more in payroll taxes than in federal income taxes, so eliminating the payroll tax would be a huge and broad-based boon to workers.
A temporary payroll tax holiday, or even a permanent repeal of payroll taxes, would not endanger either the Social Security or Medicare programs. The government could continue to pay for the programs just as it does today. The reduction in revenue could be made up for by borrowing, which the government can now do at the lowest rates that have ever been available. Alternatively, the government could self-fund the programs the same way the Federal Reserve currently self-funds its bond-purchases in the quantitative easing and overnight repo programs, simply by crediting bank accounts with dollars not linked to a collection from the private sector.