Trump just signed an order to give an extra $400 in weekly unemployment benefits. Is that legal?
President Trump signed executive orders on Saturday that aim to relieve economic hardships related to the pandemic. One would provide $400 in unemployment benefits to certain workers, while another seeks to boost income by freezing payroll taxes.
In response, critics claimed such measures are illegal, point out that Congress not the President has “power over the purse.” One Republican senator even described the orders as “unconstitutional slop.” Meanwhile, Trump’s allies and some legal scholars pointed to laws that could provide legal cover for his actions.
So how will this all play out? Here’s a plain English guide to Trump’s orders, the legal debate and what could happen next.
How can the President create a $400 weekly federal unemployment benefit without Congress?
It’s doubtful he can. Of the four executive orders that Trump issued on Saturday, this one has come under the most fire.
The proposed benefit would replace the now-lapsed $600 in additional unemployment payments but would be available to a smaller pool of workers (gig workers and employees who earned little income would be excluded). The plan also requires states—which are facing huge budget shortfalls—to agree to pay $100 of the $400 in proposed benefits in order for their residents to be eligible.
In order to pay for the federal portion of the $400, the Trump Administration would tap $44 billion in funds allocated to the disaster relief agency, FEMA. On its face, this provides a way for the President get around the Constitution’s rules that only Congress can raise funds: By tapping the FEMA funds, Trump is merely spending funds that Congress has already allocated.
The problem with this loophole is that there are existing laws that specify how disaster funds may be allocated. And as law professor David Super notes, such funds can only be used for unemployed people who are ineligible for other jobless benefits. Trump’s order, however, appears to exclude the latter class of people who would be eligible—while extending the benefits to those who are not eligible under the disaster laws.
While a handful of other legal scholars, such as Josh Blackman, read Trump’s move as constitutional, they are a minority view. Most commentators, including the Wall Street Journal’s editorial board—a vocal supporter of the President—view the plan to pay $400 as outside the law.
What about the plan to boost income with a payroll tax cut? Is that legal?
Right now, employers deduct a 6.2% payroll tax from their workers’ paychecks. They collect this money on behalf of the federal government, which uses it to fund Social Security and other programs.
Trump’s executive order does not seek to eliminate this tax, but rather to suspend it—meaning that employees would have to pay the tax at some point in the future. But Trump also says he would eliminate this future obligation if he is re-elected.
Unlike the plan to pay $400 in unemployment benefits, there is a consensus that suspending payroll tax is clearly legal. In the event of a disaster, the President has the authority to stop various tax collection for up to one year—this is the power the Treasury Department used to push this year’s tax filing deadline from April to July.
But even though Trump’s order concerning the payroll tax is probably legal, it has attracted plenty of criticism on the grounds it is unlikely to provide much economic relief. The reason is that employers will be reluctant to change their payroll procedures to stop withholding funds that will have to submitted anyways. Meanwhile, Trump’s promise that he will eliminate the future obligation is unlikely to persuade them to do so—for the reason that, to fulfill the promise, he would have to both win reelection and get Congress to pass a law authorizing the measure.
In the meantime, one scholar claim the biggest beneficiary of Trump’s payroll executive order will not be American workers but a handful of tax lawyers:
What about the other executive orders on evictions and student loans?
The other two executive orders are related to evictions and student loans. In the case of the former, Trump’s order merely suggests that certain agencies like HUD consider taking measures to prevent evictions—there is no firm order for them to do anything.
As for student loans, the order in question calls for letting certain borrowers defer payments if they are experiencing economic hardship—a power that is clearly within the federal government’s power.
The upshot is that the eviction and student loan orders have not sparked a legal controversy like the ones related to unemployment benefits or payroll taxes.
So what happens now? Will there a big court fight?
It’s possible. Trump’s executive orders have angered both liberals, who argue they are ineffective and illegal, as well as conservatives who have long been suspicious of such orders. Meanwhile, executive orders have already been a hot button issue in federal courts in recent years—most notably those issued by President Obama concerning undocumented immigrants.
But while Trump’s orders certainly provide fodder for a court fight, most of the action for now is likely to be on the political rather than the legal front. With the Presidential election only three months away, Trump’s critics are likely to focus their energy on defeating him at the ballot box rather than legal challenges that could take years. That doesn’t mean there won’t be lawsuits—only that they will take a backseat to the political process for now.
More must-read finance coverage from Fortune:
- Looking for a job in finance? These Fortune 500 banks have the most job openings
- Congress still “a long ways away” from deal on bill that would include more stimulus checks
- Ford’s Jim Hackett had a bold vision—but couldn’t improve this all-important financial metric
- SEC reportedly investigating Kodak’s government loan and stock spike following Trump deal
- A running list of companies that have filed for bankruptcy during the coronavirus pandemic