Is Trump’s New Payroll Tax Break going to prevent the closure of small business?

The COVID-19 crisis has spurred a massive recession, which has placed SMEs in a dreadful position. Thousands have already permanently shut down their doors during the pandemic while those who remained open have struggled with cash flow problems.

At the end of June, the Main Street Alliance Small Business Advocacy Group found that nearly 60 percent had to delay or reduce their commercial rente payments in the last 4 months. And with many small enterprises still facing restrictions, the fight to pay rents will probably continue.

However, the wage tax break from President Trump will begin in September and, while certainly not a perfect solution to the on-going crisis, it can help small businesses to pump cash at a time when they really need it.

Is a late payroll tax going to save small enterprises?

All employees are subject to wage charges equivalent to 6.2 percent of their income of up to $137,700. (The amount of social security wages applicable changes every year; the figure can increase by 2021.) Employers also pay social security 6.2 percent payroll tax, effectively splitting the total burden among employees.

What the President’s payroll tax holidays have done is to suspend the employee’s share of social security tax for those with an annual wage of $104,000 or less, beginning in September to 2020. By allowing workers to pay less tax at an early stage, the aim is to increase the paychecks of employees in the near future. It is hoped that this will fuel economic growth and possibly prevent further closures of small businesses or improve the financial situation of difficult businesses today.

This payroll tax break is not permanent, to be clear. As of now, it is only a postponement and any payroll tax not collected by the end of that year is due in 2021. And while President Trump has promised to forgive this deferment if re-elected, he may not be authorized to do so. As such, the current fiscal holiday he arranges is really only a solution to a major problem β€” and it might not be sufficient to boost expenditure and save little companies from extra shutdowns.

As a result, the deferment of payroll tax by Trump may not be a boon to commercial property owners whose small businesses rent back. It can also do little to prevent small companies closing, meaning that business owners can continue to struggle with vacancies.

A rather ineffective way to boost the economy

Although a salary boost may give Americans some peace of mind in the short term, the failure to remove their payroll tax liability can lead them to continue to spend conservatively – meaning that they do not pump more cash into local businesses that need it.

Let us not forget also that a tax break for the President’s payroll is not the same as a stimulus. The latter includes a check with no attachments, so the money can be spent free of charge. The current tax holiday is truly nothing but a glorified loan – a loan that could be due at the worst time.

Therefore, while the theoretically boosting American revenue is a good idea, it can not in practice do anything for small businesses β€” or commercial property owners who rely on them to keep paying rents.

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