Lawmakers started issuing proposals to extend the payroll tax cut into 2012 and they’re doing so along party lines. Both Republican and Democratic parties are prepared to extend the payroll tax cut for another year. However, they have different ideas regarding how the extensions should be implemented, meaning continued debates over how to execute an extension could extend dangerously close to the payroll tax cut expiration date at the end of the year.
Payroll Tax Cut Overview
Congressional lawmakers in both parties have begun issuing what they believe is the right solution for extending the payroll tax cut.
Reductions in payroll taxes were first enacted last year for the 2011 tax year, resulting in a reduced workers’ Social Security payroll tax rate to 4.2 percent on the first $106,800 in wages. This percentage was a drop from its normal 6.2 percent tax rate.
In actual figures, this payroll tax cut means taxpayers earning $50,000 will take home an additional $1,000 this tax year, and workers earning more than $106,800 will take home $2,136 more.
This payroll tax break is set to expire after Dec. 31, 2011. With the deadline approaching in only a month, there is more pressure for lawmakers to establish a plan of action on how the payroll tax cut will be implemented for the next tax year.
Republican and Democrat Tax Proposal
On Wednesday, Senate Republicans released an outline of their tax proposal to extend the payroll tax break into 2012. According to the outline, their goal is to extend the tax break for one year, which they estimate will cost close to $120 billion.
They say they don’t want to raise any other taxes to pay for the extension, but they do plan to further reduce deficits over 10 years by $111 billion by instituting a three-year freeze on federal civilian worker, reducing the size of the federal civilian workforce by 10 percent through attrition, prohibiting millionaires from receiving unemployment benefits or food stamps and requiring millionaires to pay full fare for Medicare Parts B and D.
Like the Republican party, Democrats also planned to extend the payroll tax cut into next year. However, their tax proposal seeks to make further reductions, like taxing workers 3.1 percent next year. This payroll tax cut would enable workers making $50,000 to take home an additional $1,550. In addition, Democrats propose increasing the wage cap to $110,100.
Further, the employer’s portion of the payroll tax would drop to 3.1 percent on the first $5 million that the company pays in wages, and employers would be exempt from paying any Social Security tax on increases in their payroll up to an unspecified cap.
Both parties have already expressed that their opponent’s tax proposal, as they stand, cannot pass in Congress. With only a few weeks left until the end of the year, whether or not a payroll tax cut extension will be passed successfully remains uncertain.
