According to press reports, by Executive Order President Trump is preparing to suspend the payroll tax through the end of the year retroactive to July 1. He also intends to extend supplemental jobless benefits, although at what level and for how long remains unclear. Add to that his intent to impose a partial moratorium on evictions and assistance with student loans and you have a perfectly tuned re-election program aimed squarely at the economic illiteracy pandemic now afflicting the voting public.
The program would be a blatant violation of the U.S. Constitution, both in its particulars (Article 1, Section 8, clause 1) and in its violation of the separation of powers. The precedent for this Constitutional vandalism was firmly established by former President (and University of Chicago Constitutional law lecturer) Barack Obama. Notwithstanding the fact that the U.S. Constitution locates the taxing power in the Congress, President Obama ordered the IRS not to enforce the penalty for non-compliance with the coverage mandate required by the Affordable Care Act, otherwise known as Obamacare.
While on the hustings, the Obama Administration argued that the mandate did not constitute a tax. However, in front of the Supreme Court the Administration argued that the mandate was in fact a tax. The Supreme Court agreed with them and declared the mandate to be a tax. It was a tax that the Administration pointedly refused to enforce.
It is worth noting that the mandate was a necessary element of the bill for two reasons. First, the CBO used the mandate to overestimate how many young people would comply with the bill, thus reducing the cost estimate. Second, the CBO cost estimate served to bolster the Obama Administration’s risible claim that the bill would reduce unit costs and therefore consumer insurance rates.
In the event, Republicans asked a prescient question: What would happen if a Republican President announced he would not enforce a different section of the tax code, for instance the capital gains tax? Progressives gave their stock answer: “That will never happen”, they said. That by the way is answer they usually give when pressed about the potential consequences of promoting lawless activity.
Well, here we are. The president, a Republican, has said that unless certain conditions are met, he will indeed refuse to enforce the tax code in a way that is liable to help him electorally. And let’s not kid ourselves. This type of lawless governmental behavior has become the rule, not the exception.
Governors, for instance, often rely on declaring tax holidays, sometimes targeted to dates, sometimes targeted toward geographies. Except that generally sales taxes are not transaction taxes—they are use taxes, and so cannot be legally declared exempt for certain situations within the meaning of the law. And not to put too fine a point on it, there has not exactly been a rush to enforce laws protecting people and property from rioters in large American cities. Nor has much mention been made of the obvious fact that the rioters are on the whole, whiter than the police departments they are accusing of systemic racism.
So here we have a situation where a Republican president is threatening to refuse to enforce the law because he expects it to redound to his electoral benefit. It is a stunt that progressive politicians have been pulling for years (See DACA). The depth of the cynicism is notable though. Since there is no “pay for” mechanism and since it extends through election day, it is aimed at a short term goal, namely Trump’s re-election campaign.
It also creates creates several other political advantages for Trump and the Republicans. He will have the space to claim that he unilaterally delivered on several Democratic-populist goals, namely student loan assistance, and an eviction moratorium. But it does something else that could prove excruciatingly painful for progressives. By suspending payroll tax collections, it would bring the day of insolvency for Social Security that much closer.
The Social security system is already being battered by the economic downturn with its mass unemployment. A six-month month suspension of payroll tax receipts would constitute a direct and massive hit at the solvency of what we laughingly call the Social Security Trust Fund, thus bringing the day of reckoning closer.
It should also be noted that something like 75% of taxpayers fork over more in payroll taxes than they do in income taxes. Progressive hysteria aside, the income tax system falls overwhelmingly on people in the upper brackets. A suspension of the payroll tax would therefore have two important impacts, one direct, the other indirect. On the political side, if the Democrats were to resist, they would effectively be denying a substantial tax cut for a huge proportion of the voting population, particularly the blue collar workers they are trying to win back for the 2020 Presidential contest.
There is an important indirect consideration as well. A suspension of the payroll tax, and even more so with somewhat reduced supplemental unemployment insurance, changes the back-to-work calculation. It would raise net after-tax compensation for workers who go back on the job, thereby increasing the incentive to work and reducing the incentive to stay home. That would likely increase the pace of economic recovery.
But there is no such thing as a free lunch. The price to be paid for all this is in the disaster known as public finance. Federal, state and local governments are piling up horrendous deficits and off balance sheet obligations at an unsustainable pace. The time to address those obligations could be, and probably is, just around the corner. The problem is that a pervasive free-lunch mentality has contributed to the creation of a dependent and subservient portion of the population.
The other price we pay is continued lawlessness by government. By continuing to operate by decree justified by bumper sticker sloganeering, government becomes progressively more authoritarian. It fails to perform its primary function of securing natural rights and protecting ordered liberty. The evidence of failure is all around us, whether it is the near universal failure of urban public schools, public distrust of basic institutions, or the collapse of traditional institutions like the family, spurred on by public policies designed for centralized command-and-control of citizens’ everyday lives.