Calls from feds, service members and members of Congress to allow public servants to opt-out of President Donald Trump’s plan to defer payroll taxes until 2021 may have started to make inroads with top officials, according to testimony given by Treasury Secretary Steven Mnuchin before the Senate Committee on Banking, Housing and Urban Affairs Sept. 24.
Sen. Chris Van Hollen, D-Md., pressed Mnuchin to respond to calls that the administration “at least give them the choice as to whether or not to participate,” in the program that gives feds and military members larger paychecks for the remainder of 2020, but would as it stands have those same employees receive smaller paychecks for part of 2021 to make up for it.
The private sector does have the choice of whether to opt into the program, but feds and military members were automatically included.
“I think that’s a reasonable issue, if people don’t want to participate. But let me follow up with [the Office of Management and Budget,]” Mnuchin said.
Opponents of the deferral note that it would give recipients a false sense of additional income at a time when the potential pressure to spend is higher.
“President Trump’s tax deferral, which is mandatory for federal employees and military service members, has put many of my constituents in a difficult position,” Rep. Don Beyer, D-Va., said at a Sept. 24 House Ways and Means committee hearing.
“In the short run, they’ll see more money in their paychecks, at a time when the need is keenly felt, and many will be tempted to spend it. But under current law, they have to repay that money through double taxation beginning in January.”
Trump and proponents of the deferral program have stated that the benefits to federal employees would rely on an act of Congress to forgive the deferred payments before they were due, though there is no guarantee of such legislation.
“Awareness of this cash windfall and later requirements have not been effectively broadcast at any level of the military. These include the young soldiers, sailors, airmen, Marines and Coast Guardsmen who are still learning financial responsibility,” an Army captain constituent wrote to Beyer on the damage the program could cause to young service members.
“This sudden influx of money, unexplained, will likely be spent very quickly by many of them with little regard for later consequences. Many of the soldiers within the ranks live paycheck to paycheck and, if they are not aware that all of this money must be paid back next year, it could be ruinous to their financial health.”
Certain federal employee groups also plan to oppose the mandatory deferral though collective bargaining protections.
“While federal workers are affected in all agencies, the employees of the Social Security Administration are particularly aware of how a delay in payment of payroll taxes affects individuals and their families,” Alethea Predeoux, director of the American Federation of Government Employees Legislative Department wrote in a letter to the House Ways and Means Committee.
“For this reason, our union members at SSA have filed a ‘Demand to Bargain’ asserting that this change in withholding also represents a change in conditions of employment in violation of the collective bargaining agreement.”
The tax deferral program went into effect for September paychecks, meaning that feds and service members have likely already seen some of the impacts.
Jessie Bur covers federal IT and management.