In addition to concerns about using an Executive Order to make meaningful policy changes like suspending the collection of the payroll tax, it’s important not to lose sight of why we have the payroll tax in the first place.
The payroll tax is used to fund our two biggest federal programs, Social Security and Medicare. The logic behind this tax is that people pay into the programs throughout their working lives and then collect benefits when they become eligible for the programs themselves (primarily by becoming senior citizens).
For years now, payroll tax receipts have not been enough to cover all of the benefits being paid out by Social Security, and this deficit will become larger with every passing year. Social Security is cashing in bonds that it holds in the so-called “trust fund,” which is really just a book keeping device saying that Social Security can take money from general revenue. Absent payroll taxes, more money will have to come from general revenue.
In this time of incredible economic hardship, suspending the payroll tax may be a fine and equitable way to get more people financial support to weather these tough times. Yet over the long term moving away from the payroll tax would mean that Social Security and Medicare will just be funded out of general revenue. That would mean that people would no longer be “earning” their future benefits through this specific tax, and fewer would have a stake in controlling the programs’ long-term costs. That’s a problem and a reason that this proposal must remain temporary.