“We are going to enhance unemployment benefits through the end of the year,” Mr. Trump said on Friday.
Photo: jim watson/Agence France-Presse/Getty ImagesUnless a deal is reached on a new round of coronavirus aid, President Trump said Friday night he planned to circumvent Congress and use executive actions to provide jobless aid, suspend some payroll taxes, impose a partial moratorium on evictions and assist with student-loan payments.
The White House hasn’t provided detailed plans for the executive actions, which could potentially take place by the end of the coming week. Here is a look at what the president said he is considering.
What can Trump do to stop evictions, and has he taken action before?
The complex web of agencies and laws that regulate and subsidize the housing market means that any unilateral action by the president to keep people in their homes would be partial.
For instance, an eviction moratorium in the Cares Act that expired at the end of July applied only to properties with government-backed mortgages, covering just one-third of renters.
Mr. Trump said Friday he would extend the eviction moratorium. People familiar with the matter said he would sign an executive action that would aim to prevent families from being evicted due to Covid-19.
Housing experts say the best way to prevent a wave of evictions—and a domino effect of defaults and foreclosures by landlords—would be for Congress to enact a nationwide eviction moratorium and appropriate money for rental assistance.
But there are potential stopgaps that might protect at least some renters.
Regulators could potentially instruct government mortgage corporations Fannie Mae and Freddie Mac to offer landlords forbearance on their monthly mortgage payments if their tenants can’t pay rent, assuming they don’t evict the tenants. The problem is that Fannie and Freddie are overseen by the Federal Housing Finance Agency, which is independent. And while other government housing agencies like the Federal Housing Administration fall under the president’s umbrella, they technically can’t spend money that isn’t given to them by Congress.
“The problem is, it’s all unfunded,” said Dave Stevens, a former head of the FHA. “I’m betting there’s a way to do it, I just don’t know.”
How would Trump provide jobless aid?
“We are going to enhance unemployment benefits through the end of the year,” Mr. Trump said.
Supplemental payments from the federal government of $600 a week expired recently, and negotiators have made no progress in bridging Democrats’ proposal to restart benefits at the $600 rate, and Republicans’ desire for a lower rate, of either $200 a week or 70% of previous wages, when combined with state aid. In negotiations with Democratic leaders, Republicans proposed renewing the benefits at $400 a week.
The White House is considering using unspent money from the earlier Cares Act legislation to help states restore benefits. Officials have said the White House was looking at legal and fiscal questions regarding repurposing existing funds. Democrats have said any steps Mr. Trump could take unilaterally in this regard would be legally questionable and likely insufficient.
What about the payroll tax?
Mr. Trump said Friday he was looking at “deferring the payroll tax for a period of months until the end of the year.”
The tax code gives the Treasury secretary authority to delay tax filing and collection after presidentially declared disasters. The administration already used this authority to postpone a series of spring tax deadlines until July 15 and used it again Friday to delay some excise tax collections.
The administration is now considering using this disaster authority to implement a version of a payroll tax cut that many lawmakers in both parties oppose. The payroll tax is a large and steady revenue source for the government. Employers pay half the tax of up to 15.3% from their own funds and withhold the other half from employees’ wages. Earlier this year, Congress let employers defer part of their share.
The latest idea has several legal and logistical challenges. Just postponing the collection from employers doesn’t guarantee that employers would pass any savings on to workers.
“What employer is going to give you the amount you would have paid in payroll taxes when they know the law still requires them to be transmitted to the IRS?” said Andy Grewal, a tax law professor at the University of Iowa.
Beyond that, most of the payroll tax is dedicated to the Social Security trust fund. Unlike a payroll tax cut enacted by law, a suspension of the tax couldn’t use general fund money to backfill any gap.
And a suspended or deferred tax could create a looming liability for workers and potentially for employers. Part of the idea is that a suspension would create pressure on Congress to waive the taxes altogether, but that is a gamble.
Even for employers who do want to reduce tax withholding, doing so might take weeks for payroll companies to process and reprogram their systems. They have suggested making anything effective July 1 or Oct. 1 to align with quarterly filings, said Pete Isberg, vice president of government relations at Automatic Data Processing Inc., who said he has been in touch with administration officials on the matter. Mr. Trump on Friday described a retroactive suspension starting July 1.
However, there is a different way that the administration could achieve the same goal. Instead of trying to suspend payroll taxes, they could change the calculations for withholding income tax, and Mr. Isberg said payroll companies have suggested that as a potential alternative.
That is similar to what President George H.W. Bush did in 1992. Employers might be more willing to implement that. But reducing income-tax withholding could leave workers with unexpectedly small refunds or larger tax bills in early 2021.
How would the president ease student loan payments?
Mr. Trump said he would “defer student loan payments and forgive interest until further notice.”
The president likely has legal authority to provide some help to student loan borrowers, though the extent of that help is in dispute, legal experts said.
The Cares Act gave most borrowers with federal student loans a six-month pause on their monthly payments, interest free. The law applies to roughly 35 million borrowers whose loans are held by the federal government. It excludes about 8 million borrowers whose loans are held by private lenders with a government guarantee, under a federal program that ended in 2010. The payment moratorium is set to expire Sept. 30.
If the Cares Act provision expires, longstanding law provides federal student borrowers the option of pausing their payments during times of economic hardship, such as unemployment. But only in some circumstances would the interest be covered. For most borrowers, the interest would accrue and thus their balances would grow.
Mark Kantrowitz, who has written extensively about higher-education law and is publisher of SavingforCollege.com, says the administration lacks the legal authority to extend the Cares Act provision. But more pertinent, he said, is whether anyone would actually sue the administration to block such a move. “I doubt anybody would complain about it, but he doesn’t actually have the legal authority to do that,” Mr. Kantrowitz said.
Mr. Kantrowitz said the administration could attempt to provide relief to borrowers by tweaking a federal program authorized under the Higher Education Act known as income-contingent repayment. The Trump administration could use a process known as a negotiated rule making to change the eligibility standards for that program so it would effectively set most borrowers’ monthly payments at zero for a while.
James Kvaal, who served on President Obama’s White House Domestic Policy Council, said he believes the administration could help borrowers through a Higher Education Act provision that gives the education secretary “settlement and compromise” authority. That provision allows the secretary to write off some or all student debt for borrowers in dire economic circumstances, said Mr. Kvaal, who heads the Institute for College Access and Success, a group that advocates for student borrowers.
Doug Holtz-Eakin, a former head of the Congressional Budget Office who heads the right-leaning American Action Forum, said the president could likely find a way under existing law to pause payments for most borrowers, but whether he could suspend interest is debatable.
One thing that experts seem to agree on: The president doesn’t have the authority to help borrowers whose loans are held by private lenders—with or without the federal guarantee. That is because helping such borrowers would require the government to spend money reimbursing those lenders, a move that must be authorized by Congress.
— Paul Kiernan, Josh Mitchell, Kristina Peterson and Richard Rubin contributed to this article.
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