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Posted at 11:00 AM ET, 12/ 7/2010

Reaction to the payroll tax holiday

By Jennifer Rubin

The White House is counting the 2 percent payroll tax cut among its "wins" in the tax deal worked out with congressional Republicans. But it's a win based on a Republican idea and one that many congressional Republicans support.

You may recall that a payroll tax break or "holiday" was a Republican proposal back in 2009. Conservatives liked the idea then in lieu of a tax credit. The Weekly Standard's Matt Continetti explained the reasoning:

The payroll tax hits 60 percent of Americans, including anybody who runs a business. Cutting it would be fast, easy, and effective. Where a tax credit is complicated and invites rent-seeking, a tax cut is transparent. Last December, AEI's John H. Makin calculated that if the payroll tax were suspended for 12 to 18 months, personal discretionary income would rise by 3.5 percent. Workers would have fatter paychecks to spend. The increase in consumption would spur demand. Meanwhile, since the payroll tax also hits employers, a reduction would lower the cost of hiring additional workers. Another way to go would be not to suspend the tax, but to reduce it--permanently.

Sens. John McCain (R-Ariz.), Orin Hatch (R-Utah), Mitch McConnell (R-Ky.) and others have proposed some form of tax payroll holiday or reduction. According to a GOP House leadership advisor, more than half the Republican House caucus has gone on record at some point supporting a reduction in, or suspension of, the payroll tax.

In 2009, the White House rebuffed the idea, preferring its grab bag of stimulus spending programs. But things change. Elections have consequences. And just as the president snared the Republicans' plan for a freeze on public employee salaries, the White House now counts the payroll tax cut among its "gets."

The GOP embrace of the idea is not universal. One advisor to a hardline conservative senator e-mailed me "the payroll tax holiday ($120 billion) won't really create many jobs and will drain more from Social Security." But nearly all the GOP offices I spoke with said they far preferred the payroll holiday over the president's "making work pay" tax credit, which many conservatives considered as a gimmick in the nature of an expenditure rather than a true tax reduction. The payroll tax cut, moreover, applies to all workers with no phase out for higher-income earners.

By Jennifer Rubin  | December 7, 2010; 11:00 AM ET
Categories:  House GOP, Taxes  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: More reaction to the tax deal
Next: The Democrat blame game


Need clarification: is the payroll tax reduction two percent? Or two percentage points?

Posted by: RBinPA | December 7, 2010 11:10 AM | Report abuse

so the next GOP trick will be to make this payroll tax holiday permanent. Stealth attack on Social Security and Medicare. One wonders why Bush43/DeLay did not think of this.

Posted by: K2K2 | December 7, 2010 11:20 AM | Report abuse

As I understand it, it's a 2 % reduction and it's only on the portion paid by employees. Employers don't benefit from the reduction. So it's only part of the 2009 GOP proposal. Maybe not as big of a GOP win as Jennifer implies?

Posted by: EricR1 | December 7, 2010 11:51 AM | Report abuse

Washington politicians have already bled Social Security dry by siphoning off the extra $2.54 trillion in payroll taxes we have paid since 1983.
This means there is nothing but IOUs in the trust fund, and for all intents and purposes Social Security is insolvent.
Instead of restoring the 'borrowed' funds, Washington now wants to bleed another $120 billion from Social Security.
Any boomer counting on Social Security to help fund his or her retirement needs to ask the following questions:
1. Why has Congress spent all of the $2.54 trillion surplus when it was intented to fund retirements through 2037?
2. With the trust fund now broke, how will our benefits be funded through 2037?
3. Reducing the inflow of tax revenues by $120 billion next year will only make matters worst, so what's the plan?
The cold reality is, if we should face a bond crisis like the EU, current and future benefit payments will most likely be curtailed.
Boomers unite and say NO to this fiscal insanity! Our retirements monies are hanging in the balance.

Posted by: mtpeaks | December 7, 2010 11:51 AM | Report abuse

All the payroll tax holiday does is undermine Social Security. It does nothing to reduce the debt or solve the economic problems of this country.

Obama has once again caved in to the plutocrats and got nothing for his troubles. What a spineless sad sack. One term President for sure.

Posted by: Chagasman | December 7, 2010 12:20 PM | Report abuse

Just to further clarify, employees now pay 6.2% in Social Security payroll tax. (The tax is imposed on gross compensation up to a limit of $102,000 per year.) Under the deal, this rate goes down to 4.2% for 2011, so employee take home pay will go up. The employer portion is unchanged. Employers will continue to pay 6.2% of each employees compensation. The old GOP plan was to suspend BOTH the employee and the employer portion.

Posted by: EricR1 | December 7, 2010 12:30 PM | Report abuse

This is very confusing. The major tax taken from wages in "Federal income tax" while "social security tax" and "Medicare tax" follow. Lines 2,4 and six on the W2 form.

I had to read the comments to know which one you called a "payroll tax cut."

Still not sure what you are trying to say.

Posted by: GaryEMasters | December 7, 2010 12:40 PM | Report abuse

"The payroll tax cut, moreover, applies to all workers with no phase out for higher-income earners."

But the social security tax is phased out for the rich. What difference does it make?

Posted by: GaryEMasters | December 7, 2010 12:43 PM | Report abuse

funny,the WaPo provides a right oriented blog written on a third grade level and all it creates is confusion. Wasn't I just reading last week how Eisenhower called tax cutters chicken, yet increasing out national debt is heralded as a victory. Nothing but brilliance over here I see.

Posted by: lamarilium | December 7, 2010 12:57 PM | Report abuse

I don't know what should I call him, Obama the Republican or Obama the wimp ?

Posted by: tqmek1 | December 7, 2010 1:01 PM | Report abuse

"Elections have consequences."

And Ms. Rubin acknowledged the consequences of the 2008 election and has supported the President for the past two years, right?

BTW, I thought that the GOP wanted the POTUS to start showing bipartisanship? Here, he is working with the Republicans and Ms. Rubin doesn't say "Hey, Mr. President, thanks for working with the other party" but instead uses his compromise as a means to attack him. Expect more of the same.

Posted by: SouthernerInDC | December 7, 2010 1:09 PM | Report abuse

Question was raised as to whether this was a WH win or not. I'd say it shows the true weakness of the inexperienced community organizer sent to Washington to masquerade as our president.

Posted by: apdseal | December 7, 2010 1:49 PM | Report abuse

Repubican smoke screen. The party of NO strikes again.

Obama, get some cojones. The democrats in both houses should vote NO, just like their NeoCon friends and let the tax cuts lapse for everybody.

This country is becoming a moral backwash.

Posted by: mortified469 | December 7, 2010 5:06 PM | Report abuse

Why don't they do the inteligent thing. Cut taxes accross the board. this will only cause 1 backlash, lower government spending. do the same thing all other large businesses do. Cut back on spending, the government needs to run like a business not a charity. cut funding for things such as the TSA, we don't need a government agency running security in the airports. instead put a group of officials in charge of setting security requirements and let private organizations (or heaven forbid the airlines themselves) provide the security. stop extending unemployment, cut that down to 6 months with a 3 month extention if you can show that you have a job lined up within that time limit. i'm sorry if you can't find a job you like within 6 months, there are jobs out there get one, even if you don't like it. put in some kind of requirements for welfare such as a little bit of comunity service or soemthing so you have to give a little get a lot.

there are many other places where spending could be cut, why not look into reducing the size of our government instead of increasing it? there are just too many cooks in that particular kitchen, and they all want thier piece of the pie. the pay for elected officials should not create so many millionairs they should be doing those jobs for the benefit of the country not the benefit of thier pockets. if we pay thier salary we shouldn't pay thier food, travel, and housing as well. if all of that crap is payed why cry about making more than $150,000 a year?

Posted by: scotdavidson | December 7, 2010 9:15 PM | Report abuse

in fact they shouldn't make more that $50,000-$75,000 tops.

Posted by: scotdavidson | December 7, 2010 9:53 PM | Report abuse

so the next GOP trick will be to make this payroll tax holiday permanent. Stealth attack on Social Security and Medicare. One wonders why Bush43/DeLay did not think of this.

Posted by: K2K2

Actually simply ending the retirement polans of Congress and reducing their salaries would go a long way to reduction of the deficit.

Obama conducting business in the offices instead of on 'mad cap spending juants' ends high security debt that he ramps up on each lark flight he takes.

In fact if all the retired Presidents would stay home and give up their cushy retirement we would be better off.

From us doesn't mean above us.

Posted by: dottydo | December 8, 2010 1:39 AM | Report abuse

I fail to see how the payroll taxcut would apply to "all workers." Clearly, millions of people are public employees who do not pay into Social Security. Instead, public employees pay into pension systems. Therefore, there will be absolutely NO benefit to these workers - many of whom do not earn large amounts of money. But, rich folks will get plenty of benefit. How in the world is this fair????

Posted by: eew309 | December 8, 2010 12:46 PM | Report abuse

Does the Post realize that alot of its subscribers are people who either joined the federal government before 1984 or work for a state or local government not covered by social security. It may be reasonable to leave them out of any payroll tax cuts--but could you please stop saying that all employees get this tax break??

Posted by: jimtitus1 | December 8, 2010 1:52 PM | Report abuse

All the 2% tax holiday does is reduce your tax withholding by 2% for 2011. IT DOES NOT REDUCE YOUR TAX LIABILITY. When you file your 2011 return, you're still liable for the 2% that wasn't withheld. It's not like we're getting some sort of freebie here.

Posted by: ArtOhio | December 14, 2010 11:08 AM | Report abuse

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