There is a lot of confusion about the recent Coronavirus Stimulus Plan proposed by the current administration via Executive Orders. Perhaps, we can better understand the plan by going behind the smoke and mirrors where the view is much clearer.
As the pandemic rages on, Americans need more help. Unemployment recently has skyrocketed to rate levels somewhere between the Great Recession and the Great Depression. In addition, the stimulus money from the first plan has all but runout. Also, more and more small businesses are faced with closing their doors permanently if they do not soon receive any financial help from the federal/state governments. Even in states where businesses have been allowed to re-open, people simply are not going out like before for fear of contracting Covid-19.
To make matters worse, negotiations in Congress for another stimulus/assistance package for Americans has almost come to a complete stop. With the Congress in summer recess, it will be weeks before negotiations resume. Thus far, those negotiations include the Democrats, in various bills, propose extending unemployment benefits to a maximum of $600 per week. The Republicans, concerned this amount of money would encourage people to remain unemployed, want to offer a $200 weekly benefit. To further muddy the waters, the President proposed a $400 weekly benefit via an Executive Order, provided states can come up with twenty-five percent ($100/unemployed person) of the $400. In addition, the President wants to defer the Social Security and Medicare payroll taxes withheld from an employees paycheck until the end of the year (September 1 to December 31, 2020). However, next year employees will be required to pay back these withheld payroll taxes. If re-elected, the President hopes to somehow prevent employees from having to pay back these withheld payroll taxes all together. Two other signed Executive Orders extended the moratorium on housing evictions and a moratorium on student loan payments with zero interest until December 31, 2020. On the surface, these Executive Orders sound great but what does all this really mean? Here are some thoughts.
Regarding unemployment benefits, who can make ends meet if they receive $200 per week? Paying $400 per week is a lot more help to make ends meet but there is a catch to this as well. The Administration has proposed using unspent money that has been earmarked for disaster relief in FEMA (Federal Emergency Management Agency). Really, haven’t we gone down this road before with funds for a wall along the southern border of the United States. Remember, Congress has the power of the purse and determines through legislation where money can be spent. The Administration can say anything about where the money will come from but that does not mean it will legally be available. In addition, several governors have already doubted their state would be able to come up with the 25% in funds in order to qualify for the federal government’s money to pay people $400 per week. So, if the federal government cannot legally come up with the money and many states cannot find extra money to meet the 25% requirement, then there will be no money available to help unemployed people.
Now that brings us to the proposed payroll tax holiday until the end of the year. Payroll taxes refer to the taxes taken off of a working person’s paycheck. Few details were provided during the President’s press conference. However, most likely this tax holiday would include only the Social Security and the Medicare taxes taken off an employee’s paycheck. It is not going to include any federal income tax withheld. So how much extra financial help will a payroll tax holiday really mean to a person? Well, Social Security is a percentage tax. That means the same percent of money is taken off each pay period, 6.2%, up to a wage-based limit of $137,700. In addition, the employer matches the employees deduction of 6.2%. The Medicare amount deducted is 1.45%. Again, the employer matches the 1.45%. The total payroll taxes deducted from the employee and matched by the employer are eventually deposited in an account managed by the Federal government solely for Social Security. So, at the most, an employee would receive an extra amount of 7.65% in their paycheck for the remainder of the year.
Upon further reflection, there seems to be a lot of detailed questions which still need to be answered. For example, is it really a tax holiday if an employee has to pay back the amount taken off their pay checks from September 1st until December 31st? And if the President cannot prevent employees from having to pay back the payroll taxes deferred, how will that be deducted from a person’s paycheck next year? Will the money be taken off an employee’s paycheck periodically or all at once in the first pay period? Also, if the money is not paid back, where will the money come from to make up the shortfall to both an employee’s Social Security and Medicare accounts? Any what if the President, if he is re-elected decides to try and eliminate the Social Security and Medicare taxes all together, forever? Do we even need Social Security and Medicare anymore?
These questions and more should be on every American’s mind, especially what eliminating Social Security would mean to working Americans. How many people today could maintain their lifestyle in declining years without this important safety net? And what about people who have lost their pensions over the years through no fault of their own when the company they worked for went bankrupt? Without Social Security how would those people live a dignified life in their remaining years? Perhaps, it’s time to remember why Social Security was established in the first place.
In 1929 there was no safety net for people. Our economic system was Laissez-faire Capitalism, which means there was almost no government regulation of any financial institutions. Thus, during the Great Depression, between 1929 and 1934, more than 15,000 banks collapsed. Everyone who had money in those banks, including money for retirement, lost everything. Also, there was no FDIC (Federal Deposit Insurance Corporation) to protect their money. Many, many elderly people had to live with their relatives for the rest of their life in order to survive. Most were too old to go back to work. The FDIC and Social Security were established as a safety net to help people survive their elderly years with dignity and prevent them from living in destitute poverty. Today, the need for these safety nets is more important than ever. Remember also, Social Security is not a handout. It is not a welfare program either. It is your money and you are entitled to it whenever the time comes. Yes, it is not a great investment over the years, but when you need it, nothing else can take its place unless of course you saved a million dollars for retirement.
Then we come to Medicare. This social safety net was put in place in 1966 under the guidance of Social Security to help senior citizens pay for their medical bills and prescription drugs. At the time, many senior citizens were dying prematurely because they could not afford to pay for all their senior health needs. So, again, if the payroll tax for Medicare was eliminated, what would take its place to help senior citizens meet their health care needs in the future?
In summary, it seems as if the Republican plan for $200 is not much help to pay bills like rent, utilities, and put food on the table. The President’s plan appears to be much better but when you examine it, what are the real motives behind some of the details. If it is a back-door plan to eliminate Social Security and Medicare, how is that going to help working Americans, especially in their senior years? The Democratic plan of $600 would be more helpful but some financial experts worry that even $600 may not be enough to prevent many people from being unable to pay their monthly mortgage. Thus, they could end up still losing their house. And, someday after the Pandemic settles down, we are all going to have to get serious about paying down the Federal Debt. Are Americans prepared to make the kind of sacrifices their grandparents made after the Great Depressions and World War II in paying down the debt? More importantly, the most important question is what do you think?
Berger, Rob. “President Trump Signs Executive Orders: $400 Unemployment Benefit, Payroll Tax Holiday, Student Loan Relief, Eviction Moratorium.” Forbes.com. Web. August 10, 2020.
“Topic No. 751 Social Security and Medicare Withholding Rates.” IRS.Gov. Web. August 12, 2020.
Werner, Erica. Tony Room and Jeff Stein. “Nation’s governors raise concerns about implementing Trump executive moves, call on Congress to act.” The Washington Post. Web. August 10, 2020.