Payroll Tax “Holiday”-2% or 4% Reduction-Impact Analysis

More Federal Budget Ineptitude

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Update:  12/11/2010

Since the article was written below, I have confirmed through several sources that the “tax deal” regarding the tax holiday for FICA taxes only is reduces the tax for employees.  BRILLIANT!  I thought this was about jobs?  Employers have no incentive to hire under this plan.  They receive NO reduction in their matching 6.2% under this really dumb plan while we spend another unfunded $14 Billion…

I guess we all miss the point that this President and this Republican Congress cares about lowering unemployment…

RD Pierini

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I’ll have to admit up front that at this time I cannot determine what is actually being proposed and I cannot find any real clarification on Heritage, Human Events, Ace of Spades, Real Clear Politics and other sources.  My question is: “Since social security payroll tax (FICA), is made up of a 6.2% contribution by the employee, and another 6.2% matching contribution by the employer, for a total of 12.4%, is the proposed reduction 2% or 4% for a net tax being paid of 10.4% or 8.4%?”  This also impacts self employed individuals who have to pay 12.4% on their net income up to $106,800.  Do they get a 2% or 4% reduction?

Bottom Line:

The 2% either way is significant.  Assuming that FICA taxes generate $700B per year.  2% of $700B is $14B.  4% would be $28B.  To make this seem more real, it is the difference between $14,000,000,000.00 and $28,000,000,000.00.  Now that is real money!  If we can believe anyone in this government, Social Security is projected to start running a deficit starting in 2011.  Forget the $2.2 Trillion Dollar “Social Security Trust Fund”, aka, Al Gore’s Lock box, it is made up of treasury IOUs so either way we have to borrow the money to pay ourselves.  Maybe old Bernanke can fire up the “Fed Printing Presses” and give our Seniors some Bernanke Bucks!  (I digress!)

  1. It looks like this plan is merely adding to the deficit without any corresponding budget cuts anywhere.  Budget Cuts should be made to offset the negative impact on what is left of the Social Security system or you are robbing from Seniors who have paid into this system for over 45 years of their lives!
  2. If the actual plan is to only cut the 2% from the employee contributions, that is a good deal for employees but employers will NOT be incentivized to hire anyone as their employment costs have not changed.

Sounds like business as usual in Washington.  They keep robbing Peter to pay Paul but unfortunately it comes out of the same pocket, OURS!  Do elections matter?  I am not so sure anymore…

RD Pierini

Note:  In 2010, the FICA tax was applied to the first $106,800 of employee earnings for a maximum total of $13,243.

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