“Emergency” Actions by Federal and State Governments Create Dilemma for Employers; Confusion for Workers; Work for Lawyers
August 10, 2020—East Lansing, MI—Anderson Economic Group economists have reviewed the four executive actions signed by the President late on Saturday, August 8. These included three “presidential memoranda” and one executive order. Noting the uncertainties related to funds that are distributed under a “memorandum” rather than a law, we estimate the effects could reach nearly every worker in America, employed and unemployed.
If implemented, we estimate the measure could provide 15 million unemployed workers an additional $400 per week federal supplement to state unemployment insurance payments. On top of that, employees could defer—and perhaps later not be obligated to pay—payroll taxes starting September 1. This could impact 150 million workers and their families.
The Anderson Economic Group preliminary analysis observes considerable uncertainties in these programs, including the necessity of state participation in the $400 per week payments, and serious constitutional issues about actions under “emergency” authority.
At least 15 million eligible for new benefit of up to $400 per week, per unemployed worker
One of the actions orders funds to be made available to a huge number of currently unemployed workers. Those eligible would include gig workers and contractors who have been receiving Pandemic Unemployment Assistance (PUA) payments, and who are often ineligible for traditional unemployment insurance payments. If implemented, the amounts would be up to $400 per week, with ¾ coming from the federal government and ¼ from the states. As of August 1, there were 15.8 million “insured unemployed,” of which 12.9 million received PUA. Anderson Economic Group and other analysts have noted that the official unemployment rate estimate for the last two months has improperly excluded a large number of workers who are not working due to the pandemic, but do not consider themselves “unemployed.” In addition, the memorandum has an expansive definition of eligible workers.
The memorandum authorizes federal payments to states that set up “other needs assistance programs” to cover these payments, until funds run out or conforming federal laws are passed setting up a statutory program.
“The promise of $400 per week in additional benefits for unemployed workers—most of which would be paid by the federal government—will be a hard one for most states to ignore,” said Patrick L. Anderson, Principal and CEO of Anderson Economic Group LLC. “However, there are serious constitutional questions about the authority to spend this money, and uncertainty about how long the program can last.”
Deferral of social security payroll taxes for approximately 150 million workers
On top of extending some unemployment benefits, the actions include a deferral of federal payroll taxes levied on the wages of workers, including the earnings of self-employed workers. The deferral would reduce the taxes on worker wages between September 1 and December 31 by OASDI (Old Age, Survivors, and Disability Insurance), which is assessed at 6.2% of wages. Using this calculation, an employee making $50,000 would have a deferral of $1,033, and one making $100,000 would have a deferral of $2,067. Those making more than that would only be eligible for deferrals up to the first $104,000 in annualized wages. The deferral does not appear to apply to the 1.45% Medicare tax.
The memorandum states that “amounts deferred pursuant to the implementation of this memorandum shall be deferred without any penalties, interest, additional amount, or addition to the tax,” and that the Secretary of Treasury “shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred.” However, as things stand any deferrals would have to be paid back unless Congress acts.
We estimate at least 150 million workers would be potentially eligible. This number is larger than the 146 million insured payroll workers on whose wages unemployment insurance taxes are collected because it includes self-employed workers. The memorandum states this deferral—and possible eventual elimination of obligation—begins September 1 and runs through the end of 2020. The memorandum implies that the deferral involves only the employee side of the tax.
“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.”
Constitutional questions on the use of “emergency” powers
These actions involve expenditure of funds and imposition of taxes that, under normal operation of the Constitution, must be approved by Congress. The President articulated in each action that he was relying upon “emergency” authority granted to him under specific laws, as well as his declaration of an emergency in March of this year. He also asserted that the necessary funds have already been appropriated for pandemic relief and have not yet been spent.
Serious constitutional questions have arisen about executive orders issued by governors in multiple states, including California, Kentucky, Maryland, Michigan, New Jersey, New Mexico, Oregon, Texas, Virginia, and Wisconsin. The assertion of emergency powers in many of these state orders raises the same issues that will be raised about these Presidential actions.
Text of memorandum; labor market information
The below link to one of the August 8, 2020 actions orders the federal government to make funds available for up to $400 per week in additional benefits to unemployed workers, including those who received PUA payments under the CARES Act:
The text of the memorandum on deferring payroll tax obligations is located at:
DOL data on unemployment can be found here:
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