Posted by Larry Hurt

Payroll Tax Cuts: Yes or No?

Payroll Tax Cuts: Yes or No?

President Donald Trump has been considering further cuts to payroll taxes to allow American workers to get higher wages at home. But such an approach could have negative consequences for individuals and the economy, warn many experts. President Trump told reporters that he plans to reduce payroll taxes. However, this decision has nothing to do with an impending recession, he said. "The payroll tax is something we think about and that many people would like to see, which greatly affects the workers in this country," said Trump.

However, the president also said that the economy is still too strong to justify such a move.

How payroll taxes work

Wage taxes are levied on workers' wages and used to finance government programs, particularly social insurance, and public health care. About social security, the salaries of employees are currently subject to a tax of 6.2%, up to $ 132,900. Workers also pay a 1.45% health insurance fee. Employers make matching contributions to workers, contributing 6.2% to Social Security and 1.45% to Medicare. Workers who earn more than $ 200,000 individually or $ 250,000, if they are married and have a common income, pay a 0.9% fee for Medicare. Freelancers pay 12.4% for Social Security and 2.9% for Medicare. They are also subject to the Medicare supplement for salaries over $ 200,000.

What would a tax deduction mean?

Trump did not explain the extent of wage reduction. If he were to make such moves, He would not have been the first to implement these changes. Former President Barack Obama had previously cut taxes on employees to 4.2%, compared with 6.2% in 2011 and 2012.

However, experts believe that the moment when consumers receive their salaries may not be so obvious. If the $ 10,000 payroll tax were exempt, it would only be $ 700 for many workers. It may not be enough to stimulate the economy.

Some experts believes that with the declining employment and historically low-interest rates, this is probably not the best time to make that change. One expert said “Do not use the best game in the second quarter, wait until you need it at the end of the match, when you have to play, you want to make sure you can count on something."

Experts are also worried that the Social Security trust funds and Medicare, already facing a funding gap, will be further harmed by this policy. "If a payroll tax cut is approved, these two funds will be directly affected if no action is taken to replace lost tax revenue from total revenue."

Larry Hurt
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