OUR THOUGHTS ON:

Senate Begins Debate on Extension of the Social Security Payroll Tax Holiday

Tax

By Ron Kramer

On November 28, Senator Robert P. Casey (D-PA) introduced The Middle Class Tax Cut Bill (Sen. 1917). The proposed legislation would cut the Social Security payroll tax on employees from 6.2 percent to 3.1 percent for 2012. In addition, the proposal would trim the employer portion of the Social Security payroll tax to 3.1 percent on the first $5 million of a firm’s payroll. Also, businesses that add workers, or increase wages for existing workers, would receive an added incentive in the form of a 100 percent payroll tax reduction on the first $12.5 million of an increased taxable payroll for the 4th quarter of 2011, and $50 million in increased payroll for 2012. This latter provision is designed to encourage larger employers to hire more workers or increase the wages of existing workers.

The Middle Class Tax Cut Bill is expected to cost $248 billion. Democrats propose to pay for the bill with a permanent 3.25 percent surtax on taxpayers with incomes over $1 million annually. Republicans have expressed their support for an extension of the payroll tax holiday but have again balked at the millionaire surtax as the means for funding the bill. Instead, Republicans want to pay for the extension with further budget cuts.

The new payroll tax holiday would put an additional $1,500 in the pockets of those families making $50,000 per year, and about $3,400 for those families earning in excess of the 2012 Social Security wage base of $110,100. President Obama has claimed that the payroll tax holiday will prevent a “massive blow to the economy” and will stimulate growth.

Unless the Senate can reach a bi-partisan agreement on how to fund the bill without the 3.25 percent millionaire’s surtax, it stands no chance of gaining the 60 votes in the Senate required to move the bill forward.
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