Congress must act fast if it it's going to renew Social Security payroll tax break for another year
Nearly 2.1 million Louisiana residents who benefited from Social Security tax reductions in 2011 will resume paying at the old rates on Jan. 1 unless Congress and the Obama administration reach a deal to continue the cuts for another year. Although there's bipartisan support for continuing with the lower Social Security tax rates, worth $934 to the average family, disagreements on how to offset the $110 billion cost makes enactment uncertain -- not surprising given even routine legislation is stalled by Washington's highly partisan divide.
View full sizeThe U.S. Capitol was photographed Nov. 19. Senate Democrats, backed by President Barack Obama, will offer up legislation this week that would continue the tax breaks for another year, paying for it with a 3.25 percent tax surcharge on incomes of $1 million or higher. GOP opposition is likely to kill the proposal.
To Sen. Mary Landrieu, D-La., the proposal provides badly needed relief for the vast majority of Louisianans, while raising taxes slightly on less than one-half of 1 percent of state residents.
"The wealth gap continues to increase as the middle class gets squeezed," Landrieu said. "This plan is about bringing fairness to the tax code -- it is a commonsense step that will provide relief to middle-class families and help employers create jobs and put this recession in the rearview mirror."
Sen. David Vitter, R-La., wants the payroll tax extended, along with extended unemployment insurance benefits for those who exhausted the normal 26 weeks of coverage, but only if costs are offset with cuts in other federal spending. He is joining in the Republican argument that higher taxes on the wealthy would affect not just the super-rich, but many small-business owners who could end up hiring fewer Americans.
"As we try to get out of this horrible Obama economy, I think we should work hard to avoid raising any taxes -- on workers, on small businesses, and on investors who help grow businesses," Vitter said. "And I certainly think many unemployed folks need continuing help."
Not all Republicans are committed to continuing the payroll tax breaks.
Rep. Jeff Landry, R-New Iberia, while not closing the door on continuing the payroll tax breaks, said he worries about cutting revenue for Social Security, given "the program is going broke."
Rep. Steve Scalise, R-Jefferson, said he'll continue to push for "closing loopholes and lowering overall rates" to make American small businesses more competitive. "Additionally, rather than continuing to extend unemployment benefits, we should instead focus on creating jobs," Scalise said.
Rep. Cedric Richmond, D-New Orleans, said it would be wrong to eliminate the payroll tax reductions, as well as extended unemployment benefits, when so many Americans continue to face serious economic challenges.
"While some progress has been made regarding our economy, the fact of the matter is that everyday folks and American businesses are still struggling with the effects of one of the worst economic periods this country has faced since the Great Depression," Richmond said. "Payroll tax relief and unemployment benefits have played a critical role during our recovery, and their importance has not diminished."
About 15,000 Louisiana residents face loss of unemployment benefits if Congress doesn't continue extended benefits, according to Richmond's office.
The payroll tax holiday, enacted in December 2010, part of a compromise bill that also extended the so-called Bush tax cuts through the end of 2012, reduced employees' share of the Social Security levy from 6.2 percent of earnings -- up to $106,800 -- to 4.2 percent. The bill also reduced the Social Security tax that self-employed Americans pay from 12.4 percent of taxable earnings to 10.4 percent.
Mark Zandi, chief economist of Moody's Analytics, predicted that if Congress fails to extend the temporary payroll tax cut and extended unemployment benefits, it could mean about 1 million fewer jobs for the economy by the end of 2012.
Rep. Charles Boustany, R-Lafayette, who is willing to continue the payroll tax reduction and extended unemployment benefits if offsetting spending cuts are enacted, said much more needs to be done.
"Our nation needs fundamental tax reform aimed not only at reducing tax rates, but also at simplifying the current tax system in order to restore American competitiveness," said Boustany, who sits on the House tax writing committee.
Bruce Alpert can be reached at balpert@timespicayune.com or 202.450.1406.