Goodbye, payroll tax


By DAVID HENDRICKS

New York Times News Service

As the “fiscal cliff” approaches at the end of this year, with tax cuts expiring and vast spending cuts on the schedule, only one tax cut appears certain to end: the payroll tax cut.

It was only 2 years old.

But this tax cut deserves to go away. It never should have been enacted.

What payroll tax cut, you say?

Most people never knew it existed. It was so small, on a weekly or biweekly paycheck basis, that almost no one knew the tax cut was there.

Either the amount was swallowed up by increases in health care insurance premiums paid by employees, or it was mixed in with pay increases — for those lucky enough to receive raises.

No one asked for the payroll tax cut. A groundswell of public sentiment for such a tax cut never occurred. Yet, the Obama administration and Congress pushed it through twice.

Did the payroll tax cut boost job creation? None of the tax cuts going back to 2001 did.

The payroll tax cut is this: the 6.2 percent Social Security tax paid by employees was reduced to 4.2 percent in 2011. Congress extended the tax cut into 2012. The tax cut was good this year for wages up to the Social Security cap, which is $110,100, a slightly higher amount than in 2011.

The Obama administration started the payroll tax cut as a way to boost consumer spending and job hiring. The payroll tax cut was clever in that it applied to everyone who had a paycheck. If it had been an income-tax rate reduction, it would have helped only the people who earned enough to pay income taxes.

This year, the tax cut equaled about $700 for a person making $35,000 a year, according to the New York Times. If someone earned the $110,100 limit, the tax cut equals about $2,200.

The tax cut also resulted in a loss of revenue to the government in 2011 of about $112 billion. A similar loss of revenue will occur this year, bringing the total loss of revenue to about $224 billion.

The Social Security Administration still received the money it would have received had the tax cut not been enacted. At the end of each of the two years, the federal government is restoring the lost revenues to the Social Security system out of its general fund. Those payments add hundreds of billions of dollars to the mountain of federal debt.

The end result of the payroll tax cut is that many households could eat out in restaurants a few more times each year or buy some more clothing. Perhaps some households were better able to pay the bills and the rent.

The payroll tax cut isn’t free. Long-term damage will occur due to a higher federal debt and the long-term interest costs that continue to eat up an increasingly larger percentage of the annual federal budget.

Various news organizations are reporting that Democrats and Republicans agree, as a matter of reducing federal debt, that the payroll tax cut should expire at the end of this year.

Congress still will be extraordinarily busy between the Nov. 6 election and the end of the year deciding what to do about the future of the Bush tax cuts, the child tax credit and the automatic spending cuts. The spending cuts will hurt the employment picture the most because of fewer government and contracting jobs.

Those decisions will have larger consequences for the economy and jobs than the expiration of the payroll tax will.

 

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