Payroll tax cut on menu in coronavirus aid talks, McCarthy says

Payroll tax deferral would require beneficiaries to repay the federal government, unless lawmakers waive that requirement later

Sen. Charles E. Grassley, R-Iowa, hasn't been too keen on providing a payroll tax cut as part of coronavirus relief efforts. (Tom Williams/CQ Roll Call file photo)
Sen. Charles E. Grassley, R-Iowa, hasn't been too keen on providing a payroll tax cut as part of coronavirus relief efforts. (Tom Williams/CQ Roll Call file photo)
Posted July 20, 2020 at 4:01pm, Updated at 7:01pm

Republicans plan to try to give workers a break on payroll taxes in their forthcoming $1 trillion-plus pandemic relief proposal, which they expect to unveil later this week as the starting point for negotiations with Democrats.

“It’s one of the issues that we’re proposing,” House Minority Leader Kevin McCarthy told reporters at the Capitol. The California Republican met earlier Monday with President Donald Trump, Vice President Mike Pence, Treasury Secretary Steven Mnuchin, White House Chief of Staff Mark Meadows and Senate Majority Leader Mitch McConnell in the Oval Office.

“I don't think there's too much dispute as to the level of importance" of cutting payroll taxes, Trump said in remarks to reporters during the meeting.

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Trump has been pushing a payroll tax holiday as part of the next round of COVID-19 relief, but it hasn't been clear exactly how the proposal would be structured.

The provision Republicans are discussing would be structured as a tax deferral, a White House official confirmed. That means payroll taxes will be due at a later date and the break won’t add much to the cost of the overall bill. Lawmakers could waive the payback requirement in future legislation if they’re willing to absorb or offset the cost at that time.

In the $2 trillion March aid bill, Congress waived the 6.2 percent payroll tax portion paid by employers into the Social Security Trust Fund through the end of this year, at an estimated $352 billion initial cost, according to the Joint Committee on Taxation. However, the nonpartisan committee said all but $12 billion would be repaid by mid-2022, with the remaining revenue loss likely due to firms going bust since the pandemic shut down huge swaths of the U.S. economy.

Employees pay the same 6.2 percent of wages into Social Security, up to a maximum amount that grows with inflation each year. For 2020, the cap on salary subject to Social Security payroll tax is $137,700.

It wasn't immediately clear whether the new GOP proposal would also waive payroll taxes that fund Medicare, amounting to 1.45 percent of wages paid by both the employer and employee. That tax is applied without a salary cap.

McCarthy also confirmed that another round of $1,200 direct payments to individuals would be included in the GOP proposal, though he didn't address what income cutoff would be part of the bill. McConnell has suggested $40,000, down from $75,000 in the first round of payments that went out under the March law.

GOP misgivings

McCarthy told reporters that no one in the White House meeting disagreed with the president on including payroll tax relief.

But on Capitol Hill, lawmakers in both parties have dismissed payroll tax cuts as ineffective compared to other aid measures. For one thing, they wouldn't benefit laid-off workers, and the money would only slowly build up with each paycheck. For lower-income workers, the amounts would be smaller than for those earning six-figure salaries.

Senate Finance Chairman Charles E. Grassley told reporters Friday that a payroll tax moratorium might not deliver the fast economic impact Trump expects since October is the earliest people could feel the benefits. Another round of direct payments to individuals would put money into people’s pockets more quickly, the Iowa Republican said.

Fellow tax writers John Thune of South Dakota and John Cornyn of Texas, respectively the current and former Senate Republican whip, each said they’re “not a fan” of a payroll tax break that would deprive revenue from the struggling Security and Medicare trust funds.

Cornyn also said he’s opposed to another round of direct payments, saying the initial round of checks were meant to be temporary lifeline until people had time to apply for and receive unemployment benefits.

'End of this month'

Mnuchin said at the White House meeting that Republicans’ plan would start with another $1 trillion in federal aid on top of the more than $2.4 trillion that’s been distributed in a handful of laws passed since March.

“We are committed that by the end of this month — before the enhanced unemployment insurance expires [July 31] — that we pass legislation so that we can protect Americans that are unemployed,” he said.

Mnuchin and Meadows are scheduled to meet with Speaker Nancy Pelosi and Senate Minority Leader Charles E. Schumer to discuss the emerging package Tuesday afternoon, according to sources familiar with the planning who weren't authorized to speak publicly.

Democrats are pushing for an extension of the full $600 federal enhanced unemployment benefit. Republicans have said they don’t want to simply extend that amount because in some cases people have made more on unemployment than they did on the job, which some economists have labeled a disincentive to work.

Mnuchin said the GOP plan would provide a “technical fix on enhanced unemployment” to ensure people aren’t paid more to stay home versus going back to work. He did not detail what that fix would look like.

“We want to make sure that people who can go to work safely can do so,” Mnuchin said.

McConnell said he will begin “socializing” the details of the proposal with his members Tuesday. Mnuchin and Meadows will be attend the weekly Senate Republican Conference lunch where that socializing is expected to begin.

Mnuchin also said that the GOP bill will have tax credits for personal protective equipment and a safe work environment, which may pull from bills Ways and Means Republicans introduced to provide employers with payroll tax credits for taking steps to follow public health guidelines.

One of the GOP bills would provide a refundable payroll tax credit for 50 percent of costs associated with COVID-19 testing, personal protection equipment, disinfecting and reconfiguring workspaces. The credit would be limited to $1,000 per employee for up to 500 employees, phasing down to $750 per for the next 500 employees and $500 for each employee beyond the first 1,000 employees.

The other bill would provide businesses with a refundable payroll tax credit for 50 percent of the cost of COVID-19 testing employees. The credit would be capped between $250 and $500 per employee based on the size of the business.

Another element of the Republican bill will be aid for schools. Mnuchin said the bill would provide education funding for states “for schools that can open safely,” suggesting jurisdictions that opt to keep schools physically closed won’t receive any aid.

Mnuchin did not mention an amount, but Meadows offered a figure on Fox News Channel's "Sunday Morning Futures" over the weekend.

"There will be over $70 billion that this president has already authorized to work with Congress to try to make sure that we not only keep the classrooms safe but the teachers safe and the students safe," the chief of staff said.

Virus testing

Despite reports the administration wanted the Senate to exclude any further money for testing, several GOP senators said Monday they expect funding for that in the bill.

Sen. Roy Blunt of Missouri, who with other Republicans met with Mnuchin and Meadows on Monday, called the administration’s request to eliminate $25 billion Republicans are planning to include for testing “wrong.”

“We're in the process of developing tests that would be easier to take … Those tests can be much more helpful than tests that can take four or five days to find out the results,” said Blunt, who oversees the appropriations subcommittee with jurisdiction over health care and education spending.

Senate Health, Education, Labor and Pensions Chairman Lamar Alexander, R-Tenn., agreed on the need to provide funding for more “adequate” and “rapid” tests, which he noted will be needed to help schools reopen.

Senate Appropriations Chairman Richard C. Shelby, R-Ala., who was in the meeting with Blunt and Alexander, said the group plans to meet again Tuesday morning. "Our staffs are working," Shelby said. "We’re trying to figure out how to deliver the best thing in this crisis to our schools, to everything else that people are challenged with."

The Republican proposal is unlikely to draw any Democratic support and is meant to serve as the starting point for bipartisan negotiations against Democrats’ $3.5 trillion relief package, which that chamber passed in May.

Schumer sent a letter to his caucus Monday saying the legislation Republicans are drafting “comes up short in a number of vital areas, such as extending unemployment benefits or funding for rental assistance, hazard premium pay for frontline workers, or investments in communities of color being ravaged by the virus, and many other necessary provisions.”

Niels Lesniewski, Ellyn Ferguson and Doug Sword contributed to this report.