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1 1 (March 5, 2020)

handle is hein.crs/govcaoz0001 and id is 1 raw text is: Researh Sevice Payroll Tax Cuts as an Economic Stimulus Response to Coronavirus Disease (COVID-19) March 5, 2020 The current coronavirus disease (COVID-19) outbreak has increased concerns that the U.S. economy could be affected as part of a global economic downturn. A range of fiscal and monetary policy tools have been used to address prior times of economic weakness. One option for fiscal stimulus is a temporary payroll tax cut for employees. This option was used to address economic weakness in 2011 and 2012. On March 2, 2020, President Trump and others expressed interest in a one-year payroll tax cut to help bolster the economy. What Are Payroll Taxes? Payroll taxes are collected to finance certain entitlement programs, including Social Security, parts of Medicare, and Unemployment Compensation (UC). Social Security's old age, survivors, and disability insurance (OASDI) payroll tax is paid by eligible workers and their employers, and it finances the Social Security trust funds. The tax equals 6.2% of wages on the taxable earnings base (S137,700 in 2020). This tax is paid by both employers and employees (with self-employed individuals paying both the employer and the employee share, or 12.4%). Stimulus Effects of a Temporary Reduction in Payroll Taxes Short-term fiscal stimulus measures aim to boost economic activity primarily through increases in the demand for goods and services. The Congressional Budget Office (CBO), in testimony before Congress, previously identified three key criteria commonly used to assess the stimulating effects of policy proposals: (1) timing, (2) cost-effectiveness, and (3) consistency with long-term fiscal objectives. The following sections evaluate a payroll tax rate reduction using these criteria. Timing To be effective, short-term stimulus should affect the economy while it is in a period of economic weakness. Although there is general agreement that the coronavirus will have dampening effects on the U.S. economy, there is substantial uncertainty regarding the magnitude of these effects. The Federal Reserve Federal Open Market Committee decision to lower the federal funds rate by half a percentage Congressional Research Service https://crsreports.congress.gov IN11230 CRS NStGHT Prepaimed for Mernbei-s and Committees 4 o. C- --q .. . . . . . . . ...-----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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