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Thursday, December 1, 2011

Explaining The Payroll Tax Cut Debate

The U.S. Capitol building. (AP)

President Obama is urging Congress to extend and expand the payroll tax cut that’s set to expire at the end of this year. The proposal, which is being debated in the Senate this week, would reduce federal tax revenue by $265 billion over the next year.

Democrats in the Senate want to pay for it with a tax on people making over $1 million a year. Republicans say they are for the payroll tax cut, but paying for it by increasing taxes on another group is a bad idea.

Howard Gleckman, resident fellow at the non-partisan Tax Policy Center explained some of the details of the debate.

What Is The Payroll Tax? What’s Up For Debate Now?

Gleckman says everybody has to pay two different kinds of payroll taxes: one for Social Security, one for Medicare. The Social Security tax, which is the one being debated, is paid half by employees and half by employers. At this time last year, Obama agreed to reduce the employee share of the payroll tax by about 2 percentage points. That tax cut expires at the end of this year. And the argument everyone is having now is what to do with it after it expires.

Do Americans Realize There Is A Payroll Tax Cut?

Gleckman says he suspects that most Americans don’t know that they are getting this break. It does show up in your pay stub, you are actually having less money withheld than you were before but a lot of people don’t really notice it.

What Democrats Are Proposing

Gleckman says Obama and the Democrats want to extend the tax cut to employees and make it more generous. They also want to create a new payroll tax break for employers so they have to pay fewer payroll taxes for people that they currently have in their workforce and also for people that they hire starting next year. The Obama administration wants to pay for it with a tax on millionaires

What Republicans Are Proposing

Gleckman says Republicans have come around to the idea of extending the payroll tax cut, but they oppose the millionaire surtax.

What Is Going To Happen In Coming Weeks?

“Republicans will block any attempt to pay for this with a millionaire tax, Democrats will never agree to pay for it with cuts in spending. So they’ll do what Congress always does and just not pay for it at all and increase the deficit by another quarter of a trillion dollars,” Gleckman concludes.

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