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
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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