At the time of this writing, an impasse continues regarding the next COVID-19 relief bill. In May, the House of Representatives passed the HEROES Act, a $3.4 trillion COVID relief package; in July the Senate GOP introduced the HEALS Act, a $1 trillion relief package. There are significant differences between these proposals that negotiators have been unable to resolve.
On August 8, President Trump issued several executive measures aimed at addressing aspects of the COVID-19 crisis, ostensibly in response to the impasse.
Overview of Executive Measures
On August 8, 2020 President Trump issued four documents – one executive order and three memoranda – aimed at unemployment aid, eviction protection, student loan relief, and deferral of payroll tax payments.
Both the legality and the efficacy of these actions were immediately questioned. The New York Times characterized these executive actions as “a legally dubious set of edicts whose impact was unclear”. As summarized by the Washington Post, the President “attempted to bypass Congress and make dramatic changes to tax and spending policy, signing executive actions that challenge the boundaries of power that separate the White House and Capitol Hill.” Further, the “measures would attempt to wrest away some of Congress’s most fundamental, constitutionally mandated powers — tax and spending policy.”
If carried out, the Post notes, such actions “would provide only limited relief” and some of the President’s “new actions appear to be only instructions to his Cabinet secretaries and department heads to look for ways to address certain problems. Others involve more questionable actions such as the suspension of tax payments and transfers of money Congress has appropriated for another use.”
Payroll Tax Deferral
Of the actions taken by the President, the Center is particularly concerned about repercussions for Medicare and Social Security from deferring payroll taxes. (Directives concerning the payroll tax were included in a document entitled Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, August 8, 2020.) This document attempts to defer payroll tax payments (retroactively to August 1) through December, for individuals earning less than $100,000. The memorandum also directs the Treasury Secretary to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred.” As noted by the Post, “[t]he impact of this measure could depend on whether companies decide to comply, as they could be responsible for withdrawing large amounts of money from their employees’ paychecks in a few months when the taxes are due.”
According to the Center on Budget and Policy Priorities, this deferral will not “significantly aid the economy” in part because “[e]mployers and workers will still owe the taxes and have to pay them at a later date, so they will be reluctant to spend the money now and, in turn, help stimulate the economy. Moreover, employer decisions on hiring and investment will be driven by the demand for the goods and services they produce, not whether they owe these taxes now or later.”
Importantly, however, payroll taxes fund key components of Social Security and Medicare Part A. According to an analysis by Inside Health Policy (“Dems Concerned Trump’s Long-Term Tax Plans Could Harm Medicare” by Michelle M. Stein, August 9, 2020) the “payroll tax holiday doesn’t appear to affect the Medicare portion of those taxes” based on the federal code sections referenced in the directive, although “one analyst said it’s a small step to go from not collecting the taxes that fund Social Security to not collecting the Medicare taxes and some lawmakers worry Trump is setting the stage to defund taxes supporting Medicare.”
Longer-Term Threat to Medicare and Social Security
As the President signed these executive actions, he vowed that, if re-elected, he would seek to extend the payroll tax deferral and pursue a permanent cut to payroll taxes, an effort that, according to the Post, “some experts see as a major headache for the future of the country’s entitlement programs.” The New York Times notes that if the President “tried to make a payroll tax cut permanent, it would have a drastic effect on the funding of Social Security, which he has previously vowed not to cut.” Further, the Post noted, in a separate article, that since the payroll tax funds Social Security and Medicare, “it’s unclear where those programs will get funding if the taxes are deferred.”
Conclusion The Center for Medicare Advocacy urges Congress to quickly pass a comprehensive COVID relief bill in order to help the country and people in need carry on through the pandemic. The Center also opposes ill-advised efforts to deplete or cut-off funding to Social Security and Medicare, our country’s bedrock social insurance programs that will continue to be lifelines for people long after the pandemic subsides.
August 13, 2020 – D. Lipschutz