Employer concerns loom over Trump's payroll tax deferral

AEI Director of Domestic Policy Studies Ryan Streeter joins Yahoo Finance’s Zack Guzman to discuss the outlook on stalled stimulus talks in Congress as President Trump is considering a capital gains tax cut.

Video Transcript

ZACK GUZMAN: Of course, we got that update over the weekend that President Trump had signed his four executive orders there to try and do what he can if talks with Republicans and Democrats do not progress. And as we've seen so far, little progress to show on that front.

And interestingly, that payroll-tax cut there might have more than just legal challenges attached to it to worry about. Employers also weighing how to move forward. Could get caught in the awkward position if things are challenged and reversed in court. And assuming that payroll tax that Trump signed is optional for employers, they'll have to decide what to do with withholdings in short order by September, and it could make a lot of these companies on the hook for those tax liabilities.

Does it sound messy to you? That's because it is. And there's much more to discuss on all of those orders as well. So here to break it all down is Ryan Streeter, Director of Domestic Policy Studies at AEI. And, Ryan, appreciate you taking the time to chat.

I mean, we'll start there on those just because that's what a lot of people are talking about right now. But what's your take on Trump trying to push those through rather than going the traditional route in Congress?

RYAN STREETER: Well, it's usually not a great idea for a president to try to use executive orders to affect spending like this. And so just backing up a minute just to the actions the president took, the Constitution clearly gives Congress the authority to appropriate funding. And so when you're trying to do stimulus spending, it really is Congress's job to get this done. And for the president to use an executive order to try to do things like fill the unemployment-insurance gap and to also deal with the payroll tax this way, it is complicated.

It's both legally complicated, like you said, but it creates great uncertainty for employers because the president does not have the authority to affect the payroll tax in this way. All that he can really do and is trying to do with this executive order is push back the withholding to a certain date. And if you're an employer, you have idea if you're going to have to pay all of that back in the future.

So none of this is to say that payroll-tax reform is not a good idea. I think it actually is a good idea, but Congress has to do it. Whether or not they do it during a stimulus-bill debate is one thing, but Congress is the body that has to take care of this. If we're going to reduce the payroll tax or eliminate it for some portion of the population, Congress has to do that. And for the president to try to get part of the way there through an executive order probably does more harm than good, in my view.

ZACK GUZMAN: Well, that's one that could be potentially more harmful than beneficial. The other one here adding to the complexity that we've seen play out was on the unemployment front, and we got the update from White House economic advisor Larry Kudlow talking about that and trying to clear things up. I'm not sure if this does in terms of the numbers we got there saying that states would qualify for another $300 in weekly unemployment benefits per person under the now updated order that President Trump put out. That would put $300 there and then $100 on top coming from the states. In total, he says it equals about $700 per person per week.

But again, it's one of those things that we've talked about, the issues on the state level trying to deal with all this and the systems in place that seem very antiquated in getting unemployment checks. The timeline there, hoping that they would be able to get this up in two weeks, but does that seem realistic to you?

RYAN STREETER: I think it's a stretch. It's challenging, and I think part of the problem here is that you're trying to move money around from different places within the federal budget to make this-- to make this happen. Again, the president doesn't have the authority to appropriate more unemployment-insurance funds. That's what Congress is for. That's what Congress's job is.

I mean, we all know that this is one of the most-- probably the most contentious element within the stimulus debates, right? So the biggest divide between Democrats and Republicans right now is on the amount of unemployment insurance and how it would work.

To try to fix this with an executive order where you're basically introducing an entirely new equation into the matter that states have to worry about and also using federal funds from a source that we haven't really experienced doing this before just makes it complicated.

So I know that Congress is at loggerheads on this, and I can understand the desire within the administration to try to march forward and fix this. But just because Congress is not being as assertive and as focused as they should be doesn't mean that the executive branch then steps in and does Congress's job for it.

When President Obama talked about fixing things with his pen and his phone, he was criticized for that-- rightly, in my view. And when President Trump tries to do it, he should be criticized for those same reasons. This is making matters more complicated than not. And the focus needs to be not on what the White House is doing here but on what Congress should be doing.

ZACK GUZMAN: Well, I think we can appreciate the consistency in that view. But on top of all that going back and forth, we did also see President Trump say yesterday he's thinking about a capital-gains tax and a tax cut for middle-income families as well, which I think, quite frankly, would seem impossible to get done with the way that House Democrats have been negotiating thus far.

But let's talk about the capital gains first, though, because that's something President Trump has mentioned before the pandemic. He mentioned it last year. It was kind of attacked about that being a tax cut that overwhelmingly favors the wealthy here. So what do you make of him trying to institute that now and in the backdrop of kind of looking at all these piecemeal things as potentially some people might say just negotiating tactics to maybe get Democrats to move a little bit more in the Republican direction?

RYAN STREETER: I mean, look, we're in the middle of a pandemic right now, and we're trying to provide support to smaller businesses so that they can stay open and keep their people employed while they're not up to 100% of business. We're debating about whether or not to continue to support them or not. We're trying to figure out what the right amount of money is to provide to certain households in America that are really financially strapped right now.

This isn't the time to be having a debate about tax reform. We went through a big debate on tax reform a couple years ago. And could we improve the tax code in certain ways the president's talking about? Perhaps, but right in the middle of this whole thing is not the right time to be having that debate.

There's enough that we're disagreeing about on the stimulus bill. It's clear that we need to do something, and Congress needs to figure out what that is, and the administration needs to be helpful and supportive along the way.

ZACK GUZMAN: Yeah, and real quick, lastly before we let you go, obviously this is dragging along. It's now August 11. We think about all those benefits rolling off. Americans now having to face the reality of not having those benefits anymore. And when you think about where Republicans and Democrats are at, what's your take on the prospects of actually getting something done through-- at the end of this week, as some people were hoping for, or on the short order?

RYAN STREETER: It doesn't sound like we're going to get anything done on the short order. I mean, that's certainly what congressional members seem to be saying. That certainly seems to be what staff are saying, that we're still a few weeks away from some kind of resolution. And so I think it's really unclear. It's unclear, I think, to a lot of people in Congress right now exactly what the next steps are.

I think there are some of these fundamental issues within the bill which are the most contentious ones. You know, there's the stimulus checks to families, which is perhaps less contentious. There's more agreement between the two parties. The unemployment-insurance piece is a big one, and then how to treat smaller businesses is somewhere in between.

And so all of those conversations are sort of happening separately and together in different ways, and it's just going to take a little bit of time. There's no real-- certainly no one involved in those discussions is trying to set the expectation that anything's going to get done this week or even next.

ZACK GUZMAN: Yeah, we've heard that so far from both sides, but appreciate the insight there. Ryan Streeter, director of domestic policy studies at AEI, thanks again for the chat.

RYAN STREETER: Thank you.