Payroll tax cut offers limited benefit, limited impact, according to Virginia Tech expert

covid-19 economy

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As details begin to emerge on plans for a new COVID-19 relief bill, Virginia Tech expert Derek Klock questions whether a payroll tax would cause much impact right now, and believes those who lost their jobs during the pandemic would get no benefit at all.

“I’m not sure that tax relief is the right tool this time. If employers are going to continue layoffs, unemployment benefits are, probably the best mechanism to ensure that the most economically vulnerable are supported,” said Klock,  a professor of practice of finance in the Virginia Tech Pamplin College of Business.

President Trump has pushed for a payroll tax cut, believing it represents an incentive for companies to hire back workers and keep them on the payroll.

“It would reduce the total payroll expense, thus the hope would be that corporations would be more willing to keep employees on the payroll,” said Klock. “I’m just not sure that a one or two percent reduction in payroll expense will be an effective inducement, considering double-digit declines in revenue at many firms.  And not every company needs this assistance. Some companies have done amazingly well.”

The clock is ticking on a new relief plan. Extended unemployment benefits for those who lost their jobs earlier this year are set to end on July 31.

“I think that we need to target those who truly need it: the unemployed, underemployed; those within 200 percent of the poverty line… and anyone who is food or shelter insecure,” Klock said.


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