Payroll Tax Deferral Could Put $150 Billion in Workers’ Pockets by End of 2020

Savings to workers include $4.0 billion in Michigan, $13.1 billion in Texas, and $6.5 billion in Illinois

August 12, 2020—Chicago, IL—Economists at Anderson Economic Group (AEG) estimate that the President’s recent executive order deferring payroll tax collections between September and December could put over $150 billion in payroll tax contributions back into workers’ pockets between September and December, although workers may be on the hook to pay this money back in 2021 absent congressional action.

The president’s executive order would allow workers to retain their 6.2% of wages contribution to the Old-Age, Survivors, and Disability Insurance (OASDI) fund–commonly referred to as “Social Security”–between September 1 and December 31, 2020. AEG researchers reviewed payroll tax collection data, data on wages and income in each state, and the presidential memorandum describing the tax deferral to estimate total savings to workers. The researchers began by developing a national-level OASDI collections model that accounts for modest economic growth over the next four months, and then imputed total deferred taxes in each state based on quarterly income data. The analysis includes contributions by employed and self-employed workers, and builds on previous AEG analysis and commentary on the impact of the president’s order increasing unemployment benefits.

“Being able to keep a portion of payroll taxes would be a significant economic boost for workers during a time when the economy is still suffering greatly from the effects of COVID-19,” stated Brian Peterson, AEG’s director of public policy and economic analysis. “States with larger populations, like Texas, Florida, and New York stand to benefit most from the policy as more money will remain in the state, recirculating through the local economy.”

Peterson estimates that California workers could save a collective $22.4 billion over four months while workers in Texas could save $13.2 billion. Michigan and Illinois workers could see savings of $4.0 and $6.5 billion, respectively, as shown in the interactive map visualization below.

The executive order instructs employers to pause payroll tax withholdings for employees. The order stops short of eliminating the tax altogether, however, as the president does not have the power to unilaterally eliminate taxes. AEG Principal and CEO Patrick Anderson notes that, absent congressional action, employees should treat any increase in take-home pay as an amount they may need to pay back in the future.

“The payroll tax deferral—especially if it seems likely will be put into law—would pose a big risk for struggling employers and their workers,” states Anderson. “Although the President probably has the authority to defer collecting the tax, until the law is changed most employees should assume they still owe it.”

Estimated Old-Age, Survivors, and Disability (OASDI) Federal Payroll Tax Collections Foregone by Federal Government as a Result of Presidential Emergency Actions, September 2020 – December 2020