Talk Brewing of Extending the Payroll Tax Cut

The Employee FICA tax rate for 2011 and 2012 had been cut from the normal 6.2% to 4.2%.  This provision was set to expire at the end of this year and then revert back to the normal rate beginning January 1, 2013.

Allowing this cut to expire in 2013 seemed like a reasonable position several months ago, however, the tepid economy has Congress discussing extending the cut or coming up with an alternative.

This cut costs about $115 billion in revenue each year to the government, however, if it is not extended, it drains this amount out of worker’s pockets and some economists predict that this will reduce economic growth by about .6% next year.

House Republican leaders are opposed to extending the cut and coming up with an effective alternative such as a credit has not shown any progress.  A credit sounds good in theory, however, it prevents giving a immediate shot to the consumer since they would have to wait to file their tax return to receive the credit.

Others want to use this cut as a bridge to income tax reform, however, in my experience Congress does not build very good bridges, whether for tax reform or roads.

Paul Neiffer, CPA