Ted Cruz, Trump, and other Republicans are pushing a payroll-tax cut that would do little for families suffering financially due to coronavirus

The payroll-tax cut has gained support from Trump and several other GOP lawmakers and conservative economists eager to jumpstart growth.

• Trump, Sen. Ted Cruz, and other conservative economists have called for it.
• But the move would not provide the economy with the adrenaline shot it needs to tide over people already out of work and businesses struggling to survive the pandemic.
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The prospect of a payroll-tax cut has gained traction among some Republicans as a way to shore up incomes for workers and jumpstart growth.

President Donald Trump strongly advocated for it at the onset of the virus outbreak, and the administration continues lobbying for it. Larry Kudlow, the National Economic Council director, has argued for a payroll-tax cut in numerous interviews without detailing specific figures.

The proposal sounds like a sensible move on paper. Payroll taxes are used to finance Social Security, with employees and employers each paying 6.2% on their wages scaling up to $137,700. Then an additional 1.45% from the employee's gross pay is used to fund Medicare.

Despite facing steep opposition in Congress, particularly from Democrats, the payroll-tax cut has drawn support from GOP Sen. Ted Cruz of Texas.

In a statement previously provided to Business Insider , Cruz called for a complete suspension of the payroll-tax cut through the end of the year.

"Not only would this alleviate the employers' burden of paying back deferred taxes over the next two years, but it would also give employees a de facto wage hike, putting more money into Americans' pockets," Cruz said.

Stephen Moore, an informal economic adviser to Trump and a fellow at the Heritage Foundation, echoed Cruz. In a separate statement, he framed a payroll-tax cut as "the biggest job creator."

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But many experts say the tax cut would do little for people who are already unemployed. Over 40 million Americans have filed for unemployment in the last three months as the pandemic slammed the economy.

The wave of job losses sent the unemployment rate skyrocketing to nearly 15%, the highest level it's ever been since the Great Depression. A payroll tax cut would do virtually nothing for people who are out of work, since they are no longer drawing paychecks from employers.

Chye-Ching Huang and Samantha Lee of the left-leaning Center on Budget and Policy Priorities laid out in a blog post why they found slashing those taxes would be "poor stimulus" earlier this month:

• Cutting the employee portion of the tax would mostly benefit higher earners, who are less likely to spend the money, and not provide a substantial pay-bump for minimum wage workers, they said.
• Eliminating employer taxes would be "ineffective" to bolster business hiring and investment, they added. The authors noted ongoing social distancing measures and a rise in unemployment, leading to reduced demand for services and products. Firms are unlikely go on a hiring spree or expand their operations amid uncertain economic conditions.

The prospect of a payroll-tax cut appears slim. House Speaker Nancy Pelosi, Democrat of California, shot down the proposal earlier this month, Bloomberg reported.

The $3 trillion Democratic spending proposal doesn't include it either. Instead, the proposal is focused on aiding states and providing another lifeline to jobless people by extending their $600-per-week unemployment payment boost through January.

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With Democrats and Republicans fiercely debating the scope of a future stimulus package, the payroll-tax cut is unlikely to provide the economy with the adrenaline shot it needs to tide over millions of people already out of work and businesses already in dire financial straits.

Laura Casado contributed reporting.

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