Congressional watchdog opens door for Dems to try to overhaul Trump's payroll tax deferral

A congressional watchdog opened the door this week for Democrats to try to nullify IRS guidance implementing President Trump's executive action allowing companies to temporarily defer some employees' payroll taxes.

In a Tuesday letter address to Senate Minority Leader Chuck Schumer and Senate Finance Committee ranking member Ron Wyden, D-Ore., GAO General Counsel Thomas Armstrong said the nonpartisan agency deemed guidance issued by the IRS a "rule" for the purposes of the Congressional Review Act (CRA).

Under the 1996 law, Congress has the power to invalidate rules established by federal agencies. The CRA states that Congress has 60 days after a rule first takes effect to pass a resolution disapproving it.

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A group of 30 senators can force a Senate floor vote on a resolution to disapprove of the IRS guidance. Still, to pass, the resolution needs a majority -- an unlikely feat with Republicans controlling the Senate.

Rep. John Larson, D-Conn., the chairman of the House Ways and Means Committee's Social Security subpanel, has already proposed a CRA resolution to overturn the IRS guidance alongside other House Democrats, including Ways and Means Committee Chairman Richard Neal, D-Mass.

Under the executive action that Trump signed on Aug. 8, the 6.2% payroll tax, which is used to fund Social Security, can be deferred for workers earning less than $104,000 annually, or $4,000 biweekly, beginning Sept. 1 through the end of the year, at which point employers are obligated to start collecting back what is owed.

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The measure, which Trump said could provide some financial salve to workers and households struggling as a result of the virus-ravaged economy, came amid a congressional stalemate over another coronavirus relief package. He's indicated that he wants to "terminate" the tax so that workers are not required to pay back the money at a later point.

"If I'm victorious on Nov. 3, I plan to forgive these taxes and make permanent cuts to the payroll tax," Trump said. "I'm going to make them all permanent."

But abolishing the debt requires an act of Congress, an all-but-impossible scenario with Democrats controlling the House.

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Absent legislation, the Treasury Department's guidance indicates that after Jan. 1, companies will withhold taxes from paychecks in larger amounts so employees can pay back what they owe, meaning that millions of Americans could see a smaller paycheck in the first few months of 2021.

It's unclear what would happen if employees pocket the windfall then stop working at their companies before the end of April either because they quit their job or were laid off or furloughed. According to the guidance, companies can "make arrangements to otherwise collect the total applicable taxes from the employee."