Fact Check: Payroll Tax Holiday… Economic Boost or Bust?

Fact Check: Payroll Tax Holiday... Economic Boost or Bust?

(RightWing.org) – On Monday, President Trump said he wants to create a payroll tax holiday to put more money in every working person’s pockets.

On Tuesday, Trump told members of Congress that the government should cut the share that both employers and employees pay from a cumulative 15.3% to zero through the end of this year.

The goal is to stimulate the economy, encouraging consumers to spend money while the coronavirus is a direct threat to the US economy.

Consumer spending makes up nearly 70% of US economic growth. The more people spend, the better the economy performs. Without consumer spending, the economy would shrink.

The question is… will a payroll tax holiday encourage people to keep spending? Is it enough to keep the US economy from declining or even going into a recession?


According to the United Nations, the coronavirus may cost the global economy $1 trillion in 2020. In the worst-case scenario, it could be as high as $2 trillion.

If Congress approves a payroll tax cut, it could help combat a recession, reduce layoffs, and give workers more money to spend.

Most of the payroll taxes in the United States are paid for by the middle-class and working poor. If they’re cut, it reasons that more money would go into the hands of those who need it and they’ll spend it immediately.

It worked it 2011 and 2012, and it could work in 2020.

What’s the reality:

  • For those earning $50,000 a year, with a 2% payroll tax cut, you’ll save approximately $1,000 per year (approximately one week’s worth of wages).
  • For those earning $137,700 per year, tax savings would be $2,754.
  • For those near the poverty level, tax savings would be minimal since there isn’t much income to be taxed.
  • Low and middle-income taxpayers are likely to spend most of their tax-cut savings.
  • The Committee for a Responsible Federal Budget estimates that Trump’s payroll tax holiday could cost the federal government $300 billion before interest.
  • The Congressional Budget Office, in 2010, estimated that cutting the payroll tax would boost the economy by $90 billion to $270 billion over 5 years.

Of course, the economy of 2020 is a far cry from what it was in 2011 and 2012 thanks to President Trump and his policies. This could lead to people not spending their unexpected tax break windfall because they simply don’t desperately need the money. They could decide to save it instead.

They could also use it to pay off credit cards or other debts, which won’t produce an immediate impact on the economy.

So the question is, will they spend the money or not?

The bottom line is there’s enough historical evidence to suggest that those who need the money will spend it — and it could be just enough to keep the economy humming along until the coronavirus crisis is behind us.

By Don Purdum, Freelance Contributor

Copyright 2020, RightWing.org