Saturday, July 9, 2011

President Obama Calls on Congress to Extend Payroll Tax Holiday

President Obama called on Congress to extend the “payroll tax holiday” for another year during a June 29 press conference. The “payroll tax holiday” was included in Section 601 in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The legislation 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.

The extension of the payroll tax holiday may meet some stiff resistance in Congress. On June 24, House members Ted Deutch (D-Fla.), Lloyd Doggett (D-Tex.), and Mark Critz (D-Pa.) wrote a letter to President Obama and other members of Congress urging them to resist any legislation that would extend or expand cuts to Social Security taxes. The Deutch, Doggett, Critz letter noted that the “2% payroll tax cut was passed last December as part of a tax compromise. At the time, we warned that dipping into Social Security's revenue stream and replacing it with general fund transfers would set a dangerous precedent at a time of great economic and political uncertainty. Breaching this sacred funding stream would also make defending against further attacks more difficult. We further warned that it would be difficult to let so-called ‘temporary tax cuts’ expire and that a permanent 2% cut in the payroll tax would double Social Security's 75 year shortfall.”

The letter also said that “Social Security's popularity comes from the direct contributions of American workers, who pay into the system now and benefit when they retire or become disabled. Polling shows that they do not mind contributing their part because they know what they are getting for it. Unless and until faith in Social Security has been restored to the American people through long-range solvency, short-sighted cuts to the program's revenue stream must not be part of any debt ceiling or budget deal” [Deutch, Doggett, Critz Letter to Congress, 6/24/11].

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