Some Talk in Washington About Providing Payroll Tax Break to Employers

Published reports indicate that the White House is considering additional payroll tax breaks to stimulate the economy.

Section 601 in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 temporarily reduced the employee Social Security withholding tax rate on wages from 6.2% to 4.2% for one year, effective with wages earned beginning Jan. 1, 2011. There is some talk in Washington about extending this break, and/or possibly providing this break to employers as well. In a June 7 joint press conference with German Chancellor Merkel, President Obama said that some “of the steps that we took during the lame duck session, the payroll tax, the extension of unemployment insurance, the investment in — or the tax breaks for business investment in plants and equipment — all those things have helped. And one of the things that I'm going to be interested in exploring with the members of both parties in Congress is how do we continue some of these policies to make sure that we get this recovery up and running in a robust way.”

In a May speech at Stanford University, Christina Romer, former Chairwoman of President Obama's Council of Economic Advisers, said that “my particular favorite additional short-run stimulus would be a cut in the employer side of the payroll tax. Congress cut the payroll tax for employees in the budget compromise last December. A similar cut in what firms have to contribute for payroll taxes would make hiring workers cheaper and would therefore likely be particularly helpful for employment growth.” Former Treasury Secretary Larry Summers also supports a payroll tax cut to employers. He stated in a June 12 opinion piece that “raising the share of the payroll tax cut from 2 percent to 3 percent would be desirable as well.”