Coyote Blog

Years ago I was arguing with my mother-in-law about Executive power and the Presidency.  She, like many Obama supporters, was arguing that gridlock in Congress over legislation she considered critical was sufficient justification for President Obama to wield new executive powers and go around Congress.  I told her this was a terrible precedent, and asked if she would be just as happy to have President Lindsey Graham wielding such power (this being the prime Republican bogeyman for her, neither of us even imagining Trump).

So now, Obama (and Bush) precedents firm in hand, Trump is reacting to deadlock in Congress over further stimulus by picking up his pen and firing off some executive orders.  I want to discuss one of these, which is to allow at least temporary non-collection of the employee share of social security and Medicare taxes (a bit over 7.6% of wages).

Leave aside as to whether this is really appropriate stimulus for the current economic problems.  A tax break to people who still have jobs might help in certain recession scenarios, but the current situation of having large numbers of people unemployed because their workplaces have been forcibly closed by the action of various governors probably will not be helped a lot if the employed have more money in their pockets -- the problem is that local government officials are not allowing them to spend it. (I will note that no one ever suggests reducing the employer share of these taxes, which might actually increase employment by reducing total employment costs in a way that changing the employee share does not).

The problem I want to discuss is the terrible situation this potentially creates for businesses like mine.  All Trump can do is defer collection of the tax -- he cannot actually set it to zero or forgive it, which must be done by Congress.  This means that if our business does not withhold these taxes from employees, they accrue and build up as a debt still owed to the government by the employee.  Six months from now, when a new administration takes over and ends the deferral, our employees (who are paid twice a month) might get a deduction in their next paycheck not for 7.6% of wages but 91.2% of a paycheck (12 missed paychecks times 7.6%).

But here is why our company is really screwed:  We have 400 employees today, but since we are a summer seasonal business we will have fewer than 100 in January.  If there is a catch-up repayment in January (meaning Congress chooses not to forgive the taxes altogether), most of my employees who would need to repay the tax will be gone.  Do you think the government is just going to say, "oh well, I guess we lost that money"?  Hah!  You don't know how the government works with tax liens.  My guess is that for every employee no longer on the payroll for whom back employment taxes need to be collected, the government is going to say our company is responsible for those payments instead.  We could be out hundreds of thousands of extra dollars.  President Biden will just say, "well I guess you should not have participated in a Trump program."

So this is the vise we are in:  Either we participate in the program, and risk paying a fortune in extra taxes at some future date, or we don't participate, and have every employee screaming at us for deducting payroll taxes when President Trump told them they did not have to pay it anymore.  And what happens if Congress does come along later and forgive the taxes, what kind of jerk am I for not allowing my employees to benefit from the tax break?

Essentially I am forced to guess what legislation might be in the future.  Sort of the opposite of ex post facto law.  Pre facto law?

Update:  LOL, I r stupid, had "vice" instead of "vise"