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Obama Emphasizes Importance Of Payroll Tax Cut

by Mike Godfrey, Tax-News.com, Washington

07 December 2011


In his latest weekly address from the White House, and following the announcement of the November jobs report, President Barack Obama exhorted the United States Congress to approve an extension of the payroll tax cuts, which will otherwise expire at the end of the year.

The November jobs report showed that a net total of 120,000 jobs were created during the month, and the unemployment rate fell to 8.6%. However, the President said that, although the US has created private sector jobs for the past 21 months in a row, and almost 3m new jobs in all, “we need to keep this growth going and strengthen it”.

He reiterated that the US “must continue growing the economy by passing the payroll tax cut, which will give the middle class a tax cut of USD1,500 and provide small businesses more money to hire workers by cutting their payroll taxes in half.”

With his American Jobs Act currently stalled in Congress, President Obama is proposing not only an extension for a further year of the existing payroll tax cut from 6.2% to 4.2%, but also a reduction in the tax to 3.1% for the first USD5m of a firm’s payroll, and a payroll tax holiday for firms that increase their payroll by adding new workers, with a cap at the first USD50m in payroll increases.

It has been estimated that a one-year extension of the current 4.2% rate would probably cost some USD120bn, but a full application of the President’s proposals would take a total of more than USD250bn out of federal tax revenues.

The Democrat party has proposed funding those proposals by a “surtax on millionaires”. A rate of 3.25% would be levied on all individuals with an income, from 2012 onwards, of USD1m. In addition, after 2013, the surtax would be adjusted for inflation.

Such a tax was never likely to be acceptable to the Republican party, as it would always consider such a move as an attack on small business owners that would reduce investment, and the Democrat proposal has been blocked in the Senate.

Subsequently, a Republican counter-offer to extend only the existing payroll tax cuts – funded by a freeze on federal workers' pay until 2015 and a reduction in the federal workforce gradually by 10% - was also heavily defeated in the Senate.

In his address, Obama’s opinion was that Republicans in Congress lack “a sense of urgency”. He added that Congress “shouldn’t go home for the holidays until they get this done”, and asked taxpayers to tell lawmakers “not to vote to raise taxes on working Americans during the holidays”.

In reply, Dave Camp (R – Michigan), Chairman of the House of Representatives Ways and Means Committee, confirmed that the November jobs report was “good news”, but that the Democrat suggestion to fund the payroll tax cut was a “job-killing” tax hike. “Not only would their latest surtax hit small businesses and investors – the very people we need paying more salaries, not more taxes – but it would also push their federal income tax rate close to 45% in 2013,” he added. “No American should have the federal government taking that much of what they earn – especially not on top of all of the other taxes people pay."

Orrin Hatch (R – Utah), the Senate Finance Committee’s Ranking Member, continued in the same vein, calling the Democrat proposal a “permanent tax hike on small businesses to pay for temporary one-year tax policy.”

TAGS: individuals | tax | small business | economics | business | fiscal policy | payroll | unemployment | legislation | United States | tax breaks

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