WASHINGTON DC (August 23, 2019) — The Washington Post reported on Monday that senior White House officials have discussed a temporary payroll tax cut to arrest the economic slowdown.
The cost of such a payroll tax cut would depend on its size, duration, and design. Based on estimates from the Congressional Budget Office (CBO) and the Joint Committee on Taxation, we estimate a temporary cut in the employee’s Social Security payroll tax would cost $70 billion to $75 billion per percent cut each year in lost revenue.
A cut in the employer payroll tax would cost $55 billion to $60 billion per percent cut each year; the cost would be lower because the employer side cut would likely translate into higher taxable wages.
In 2011 and 2012, policymakers cut the employee-side Social Security payroll tax by 2 percentage points for two years. Enacting the same policy for 2020 and 2021 would cost nearly $300 billion before interest.
Based on a CBO analysis from 2010 (when unemployment was much higher), such a cut would boost economic output by roughly $90 billion to $270 billion over five years. If policymakers offset the cost over time, they could prevent the policy from modestly reducing the size of the economy over the long term and could even increase long-term output.
Lawmakers would need to decide whether the lost revenue would mean less money for the Treasury or less revenue into the Social Security Trust Fund.
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