Payroll Tax Extension

$160 billion. To the government this is spare change, it amounts to roughly a mere 1.1% of the deficit the government has built. To American citizens, $160 billion means an extra $1000 for most families. That is how much money the new pay roll tax cut President Obama and the Congress have been bickering over for the better part of a month will save Americans. Most agree that the cut needs to be extended, though not all believe so. Predictably, the conflict has been over how to pay for the tax cut. Even more predictably, Democrats argue that the tax needs to be paid for by implementing a surtax on those making over $1 million; Republicans abhor this idea, arguing that spending cuts can be implemented to offset the revenue loss. The deadline for the extension is New Year’s Eve, when the current tax cut expires. If no deal is reached the payroll tax will increase 2% to the normal level of 6.2%. This week the Senate, unable to forge a deal to extend the cut into next year, passed a two month extension of the current cuts, giving them time to have a holiday recess and be able to continue the debate when they return, in hopes of passing a real extension for the entire year of 2012. The House voted on the Senate two month extension yesterday, and it was defeated in a partisan vote; Republicans against the short term extension and Democrats for it. This was surprising to many considering the right wing hatred of taxes. It was widely believed, particularly by Democrats, that House Speaker John Boehner (Rep, OH) was intentionally delaying a vote on the two month extension because he was aware that many republicans supported the bill and that a vote would lead to it passing. The House Republicans claim they want to create a long term deal before the deadline and not “kick the can” another 60 days.

Quotes and sound bites have been flying around Washington for days now pointing fingers and asserting high ground. No doubt a two month deal is better than letting the cuts expire; however, the House Republicans have a point, we have not seen any evidence that the two sides are capable of co-planning a cocktail party, let alone a tax policy. If they cannot draft the full term deal by the end of the two month period, having a temporary extension end in the middle of the year may make filing taxes far more complicated, and hurt more than it will help. Who is right and who is wrong? Everything is too gray to tell, it just depends on which shade you prefer. The tax extension is so murky and unclear that some economists and politicians oppose it all together. There are pros and cons to any legislation, and the payroll tax extension is no exception; some simply feel the benefits do not outweigh the costs.

Opponents of the cut say the numbers are clear, $1000 over one year only amounts to be $83.33 each month; not enough to make a significant impact on a household earning around $50,000 annually. Collectively, the money each month could make a significant impact on the economy if it is all spent, the problem is if. Market research shows that people are much more cautious with their money after the Wall Street Collapse. The problem is not so much that people do not have money, but that they do not want to spend money, the recent financial woes of the richest nation on Earth have a forcing introspection for many people. Keeping up with the Joneses is no longer the priority for Americans (at least not currently), we as a nation were given a very unpleasant reminder of why it is so important to live within our means, and many more people are doing this; this means less  money spent. The more popular trend currently would be to save the extra money, or pay down credit card bills, not spend it as soon as it is received. Opponents also argue that with the prices in food, fuel, and utilities rising, if a person does choose to spend the money it will not go farther than those three basics because of the extra cost of covering those needs, particularly for those who make under $30,000 per year, where the cuts would only give them about $40 each month. Furthermore, market research has shown that government irresponsibility plays a role in the way the country spends money. Citizens are quickly losing faith in their government, and many feel that with the deficit growing the country is headed for more financial troubles, in which case it would be best to hold onto every penny a person can get. Those against extending the cuts have argued one last point to their defense: social security costs. As much as politicians proclaim that social security is broken (it does have serious problems which need correcting) the fact is that the system is still working, or at least was still working. With the payroll tax cut last year, social security, which is funded by the payroll tax, for the first time in the history of the program paid out more money in benefits than it received in taxes last year; $49 billion more. With a payroll tax cut we now will have a social security deficit to go along with rest of the governments financial problems.

Those who support the cuts say that if they can be paid for, the cuts will not harm social security. Representatives say that social security can have the deficit replenished from the general fund if the cuts are paid for. This seems like a good enough idea, however, many remain skeptical. The reason politicians label social security as “broken” despite the fact it has been taking in more money than it pays out is that Congress has made a habit of taking money from the social security fund and spending it elsewhere, placing an I.O.U in the fund. Can we reasonable expect Congress to reverse this trend now if this cut is extended? Many argue the cut will only continue to feed the deficit. If we suspend rational skepticism for the time being and believe that Congress will in fact replenish any social security deficit, those who support the cuts are given an error proof argument; putting more money in the pockets of those who elected the representatives cannot be a bad idea. The problem now becomes how to pay for the cuts. The republican proposal to pay for the cuts by offsetting them with equal spending cuts seems to be the most logical idea for a government $14+ trillion in debt; however, we just ended a fiasco where 12 representatives were tasked with cutting spending and two months of discussion and debate led to them cutting exactly as much of the federal budget as I have while writing this article. With this as our reference, can we really believe Congress is capable of accomplishing this? Democrats seem unwilling to budge and put real cuts on the table without a tax increase. If they are not capable of accomplishing the second option is the democrats’ proposal of a surtax on those making over $1,000,000 per year. Republicans argue this will kill the economic growth because it will destroy small businesses, but the numbers tell a different story. The treasury department estimates only 1% of all small businesses make over $1 million, meaning very few will be affected by the tax. Granted, those who would be affected are those who create jobs for others. Even still, a tax on the personal finances (not the businesses) would hardly affect the business. If a CEO of a small business making over $1 million is taxed, that is only a fraction of his personal income of $1 million. The business revenue remains untouched, meaning nobody would lose their job; the bottom line is that the bottom line of the company is unaffected; it is the millionaire owner’s bottom line which takes a miniscule tax. The argument that an owner has less to invest in his company is valid, however weak. If the owner is $10,000 (1% of his million) short on an investment he wants to make from his personal funds the solution is simple. Other employees can invest and cover the amount with ease. If the owner is not inclined to do this, any bank in the country would be ludicrous to reject a loan of $10,000 to a company profitable enough for an owner to take home over $1 million. That investment in the bank will create as many jobs as in the company, so the economy gets the best of both worlds.

If logic is not enough of a reason the democrats have offered to draft an exception so that small businesses do not feel the pinch of the tax, but even that was rejected. The obvious solution of course is some kind of compromise between the two sides, but with that seeming impossible the senate dumped the two month extension on the shoulders of the tax payers anyway, paying for the cuts with extra mortgage fees. The decision is now up to the House of Representatives. With taxes at 14.4% of GDP, the lowest since 1943, and government spending at 40% of GDP the decision whether or not to pass the extension and how to pay for it is all a swirl of gray. Taxes, cuts, deficit, spending, saving, investment, social security, economy. Which shade do you prefer?

22 Dec, 2011

–Matt Young

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About patriotslog

I am studying to achieve a double major in political science and journalism from the University of Kentucky. I am married to a wonderful woman named Sierra. I am starting this blog because I feel the political climate in Washington is carving deep canyons for our children to climb out of. Our representatives, on both sides of the isle, do not represent us, they represent the lobbyists.This blog is not to give answers, but to make people think. I believe the more we think about our ideas the better they will become; as opposed to becoming more and more intrenched in far left or right wing brainwash, where it seems nobody thinks anymore. I hope y'all enjoy.

Posted on December 23, 2011, in Patriotslog Articles, Politics, Taxes and tagged , , , , , , , , , , , . Bookmark the permalink. 5 Comments.

  1. I went over this site and I believe you have a lot of superb info, bookmarked (:.

    • We really appreciate the comment! Keep checking back on the website; currently, due to other commitments and the amount of research required to ensure the accuracy and integrity of our articles, patriotslog only has time to publish about one article per week. Thank you for your support, and as the website develops articles should be published more frequently

  2. great stuff! i really like to read this type of stuff everyday

    • Thank you! That means a lot. For the time being I only have the time to put up about one article per week due to my other commitments and the research it requires to ensure the accuracy and credibility of patriotslog. Keep checking back, we appreciate your support.

  3. Hey There Patriotslog,
    Along the same lines,, Forking over our money for IncomeTax ought to be among the least pleasurable things of all time. Many of us see so much wastage of our personal income taxes that it makes the majority of us cry out in frustration.

    The theory with paying personal income tax is to always pay the smallest amount that you can, don’t pay any more then you’ve got to.. Income Tax Smells however we just can’t escape from paying it, so don’t fork out any more then you need to..
    Great Job!

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