The president has signed an executive order freezing the collection of two portions of taxes withheld from employees' paychecks – for Social Security and Medicare.
This order would take effect this month and continue through the end of the year, President Donald Trump announced in a televised press conference Saturday from the Trump National Golf Club in New Jersey.
"This will mean bigger paychecks for working families," Trump said.
The tax holiday would apply to Americans earning less than $100,000 per year, he said. The deferred tax will still be owed next year.
The payroll tax takes a 7.65% slice off employees' paychecks to fund the Social Security and Medicare trust funds.
The president's order on the tax holiday would take effect from August to December this year, but some members of the U.S. Congress have challenged the president, saying he does not have the sole authority to change the payroll tax law and that it would take an act of Congress to do so.
Income tax likely not part of tax holiday
Social Security and Medicare tax deductions that are withheld from Guam employees' paychecks go directly to the federal government, said Guam Department of Revenue and Taxation Director Dafne Mansapit-Shimizu. GovGuam has not counted taxes withheld for Social Security and Medicare as part of GovGuam revenue.
Those are the two deductions that appear to be covered by President Trump's tax holiday executive order, said Mansapit-Shimizu, but GovGuam will know for certain once the U.S. Treasury issues guidance that will help Guam officials better understand the executive order.
The other tax withheld from employees' paychecks, for income tax, is not likely covered by Trump's order, based on the government of Guam's initial understanding.
"It appears that the deferral specifically refers to payroll taxes – Social Security and Medicare – and not to what we refer to locally as withholding taxes, which impacts our general fund," Mansapit-Shimizu stated. "It will be critical that we wait on U.S. Treasury Secretary Mnuchin's guidance on this executive order. That will dictate how this is to be administered and will hopefully clarify the questions which the community may have regarding this matter."
Trump also signed another executive order that would provide $400 in weekly unemployment aid for people who have lost their jobs. However, Trump said 25% of this money would be paid by states, The Washington Post reported.
The president also signed an executive order continuing the pause on federal student loan payments and interest through the end of the year.
Governor: Litigation might challenge Trump actions
Gov. Lou Leon Guerrero, in a statement, said: "At this point, it seems that the president may face strong legal action against his executive orders as some believe that his steps represent an overreach of executive authority. For that reason, we can't clearly anticipate what policies may actually be in effect and when.
"In general, the president's payroll tax cuts seem targeted against Medicare and Social Security, placing more cash in the hands of working people, which I support."
The executive order allows workers to postpone their withholding tax payments through the end of the year but Trump promised to make the tax cut permanent if reelected.
"If I'm victorious on Nov. 3, I plan to forgive these taxes and make permanent cuts to the payroll tax. I'm going to make them all permanent," Trump said at the news conference.
Major changes to the tax code, especially a permanent cut to payroll taxes, fall entirely to Congress, reported The Washington Post, adding Democrats and Republicans alike already have balked at Trump's push for a payroll tax holiday in negotiations over the next round of coronavirus aid, suggesting a more lasting revision to federal law may be even tougher to secure if Trump does indeed win reelection.
"We will also be working to gain further clarity on the president's new initiative to pay the unemployed $400 a week on a cost-share basis, its applicability to the territories and the potential cost to Guam," Leon Guerrero stated. "I ask everyone to keep in mind that the president's actions are only hours old and the impact of them may not be fully understood until agency guidance (is) published. As we learn more, we will share that information with you."
Undermining retirement security
The Washington Post reported that shortly after Trump issued his directive, AARP raised concerns.
"Social Security is more crucial than ever as Americans face the one-two punch of the coronavirus' health and economic consequences," the Post quotes a statement from Nancy LeMond, AARP executive vice president. "But, this approach exacerbates people's already-heightened fears and concerns about their financial and retirement security."
No benefit to the jobless
Howard Gleckman of the Tax Policy Center wrote in April that Trump's tax holiday, when initially proposed, does not help the millions of unemployed Americans.
"It should go without saying, but if you have lost your job, a payroll tax cut does you no good at all. And even among those who are working, such a tax cut would be highly regressive. High-income workers would get far more dollars than low-wage workers," he wrote.
