Illinois government is a no-go when it comes to participating in the payroll tax deferral that President Donald Trump instituted by executive order earlier this month.
None of the statewide offices is participating in the president’s plan that allows employee Social Security taxes to be waived until the end of the year. That would amount to a 6.2% tax cut for the employees.
"At this point, everyone has decided they will not be deferring," said Comptroller Susana Mendoza, whose office is in charge of issuing paychecks to the 62,000 state workers. "At this point, all of state government is on the same page."
That page is that the deferral of payroll taxes is a bad idea, even if it looks attractive in the short term for some workers. The break would be available to workers who make less than $104,000 a year, if the person’s employer agrees to participate. An analysis by the U.S. Chamber of Commerce calculated that the break would be worth a little more than $59 a week to a worker making $50,000 a year.
The downside is that after Jan. 1, the money saved now would have to be repaid. That means Social Security taxes for participating workers would double to 12.4%.
"It’s more like this executive order is like a cruel hoax. It’s bait and switch right before the election," Mendoza said. "He’ll let you breathe a little easier for the next few months, but then you’ll get suffocated in January when you’ll be paying twice as much."
A memo from Deputy Gov. Dan Hynes to state agency directors cited the same concerns.
"The President's action was a deferral, rather than a tax cut, absent an act of Congress making it permanent," Hynes wrote. "Recent guidance issued by the U.S. Treasury Department and the IRS indicates those deferred taxes would need to be repaid by both the wage earner and the employer beginning January 1 through April 30, 2021, or begin to accrue interest and penalties. Such a repayment could pose a tremendous hardship on state workers. Be advised that the state of Illinois, for agencies under the Governor, will not be implementing this optional payroll tax deferral."
The American Federation of State, County and Municipal Employees, which represents the bulk of state workers, said it agrees with the state’s decision not to participate. Spokesman Anders Lindall said the union’s position nationally is that it is a bad deal for workers.
"It’s also bad as an economic stimulus," he said. "It does nothing for the millions who are unemployed."
In addition to Mendoza and Gov. JB Pritzker, Secretary of State Jesse White, Attorney General Kwame Raoul and Treasurer Mike Frerichs have opted not to participate. All are Democrats.
However, the issue isn’t a partisan one among states. A survey by the National Association of State Auditors, Comptrollers and Treasurers didn’t find any state that had committed to participating in the deferral plan. Some were still deciding, and 27 said they had no plans to participate.
Mendoza said the "no" states include Oklahoma, Utah and Alabama.
"The reddest states were the first to say no," Mendoza said. "It’s clear it’s bad policy."
Contact Doug Finke: email@example.com, 788-1527, twitter.com/dougfinkesjr