December 3, 2011
At the top of the to-do list for the end of this year is extending the payroll tax cut. Congressional Republicans, Democrats and the Administration have expressed support for this measure, but, as usual, the devil is in the details. The current payroll tax was reduced late last year by two percentage points (from 6.2 percent to 4.2 percent for employees).
Senate Democrats have proposed a bill, S. 1917, that would expand and extend the payroll tax reduction for one year, and would pay for that reduction by imposing a 3.25 percent surtax on incomes above $1 million. This bill follows the President’s proposal to further reduce the payroll tax to 3.1 percent for employees until the end of 2012, as well as reduce it to 3.1 percent for employers on the first $5 million in wages. The bill’s cost of $265 billion would be offset by the surtax. While the Senate failed to take up this bill in a 51 to 49 vote (with 60 votes needed to proceed to their bill)on Thursday, a spokesman for Majority Leader Reid said “now that Republicans have reversed their position on this middle-class tax cut, we look forward to working with them to negotiate a consensus solution.”
Senate Republicans, led by Minority Leader Mitch McConnell (R-KY), oppose the millionaire surtax but have expressed some support for extending the payroll tax cut. Earlier this week, after a closed-door meeting with other Senate Republicans, Senator McConnell said, “In all likelihood we will agree to continue the current payroll tax relief for another year,” and that there was now “a majority sentiment” among Republicans for continuing the temporary tax cut. Accordingly, late Wednesday night, the Republicans offered their own payroll tax cut extension bill, which is paid for by extending the pay freeze for federal employees – including Members of Congress – for another three years and cutting the federal workforce by 10%. This proposal would have resulted in $111 billion in budget savings over a decade beyond the $110 billion cost of the tax extension. The Senate also failed to take up this bill Thursday night, in a 20 to 78 vote.
On the House side, the Republican majority is also stressing that any extension must be fully paid for. Wednesday, Speaker John Boehner (R-OH) said “There’s no debate, though, on whether these extensions ought to be paid for. The president’s called for them to be paid for, Democrats here have called for them to be paid for and so if in fact we can find common ground on these extensions, I think you can take to the bank that they will be paid for.” House Republicans are currently drafting a plan that would extend both the payroll tax cut and unemployment benefits, and this bill could be released as early as next week. The specific offsets have not been released, but it is expected to be quite similar to the Senate Republican bill outlined above.
Despite the failed votes, which were not surprising, the bipartisan, bicameral view that the payroll tax cut should be extended, bodes well for a compromise on payment mechanisms and subsequent passage prior to January 1.
Source: Alliance for Charitable Reform, December 2, 2011
Source: Alliance for Charitable Reform, December 2, 2011
This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.