Last week, the House of Representatives and the Senate finally agreed on a two-month extension of the 2011 payroll tax holiday. That means the temporary reduction in the employee’s share of the Social Security tax, from 6.2 percent to 4.2 percent, will continue for at least another two months.
Congress will return to Washington next month and likely extend the tax holiday for the rest of the year.
Yesterday in this space, I posted a commentary by U.S. Senator Jay Rockefeller in support of the temporary payroll tax holiday.
“The payroll tax relief works immediately,” Rockefeller wrote. “Think about it. Truck drivers, home health aides, cashiers, teachers, machinists, electricians, plumbers, computer programmers, nurses and miners—nearly every single worker you know is saving money right now thanks to this relief.”
Well, as Thomas Jefferson said, “Every difference of opinion is not a difference of principle.”
I agree with Rockefeller’s principle that lower taxes do, naturally, have significant economic benefits. When people keep more of their own money, they have greater power to make decisions about themselves and their families.
They have more of the money they have earned to spend, save or invest as they choose, rather than turning it over to the federal government, which has proven to be stunningly inept matching spending with income.
The difference of opinion comes on the question of what qualifies as tax relief.
Senator Rockefeller says that because of the agreement, “most workers will get to keep an average of $1,000 in their paychecks next year.”
True, but that $1,000 figure is probably high for West Virginia. Our state’s annual per capita income is less than $33,000. That works out to a reduction of about $650 a year from the payroll tax holiday, or $25 every two weeks.
Now, every little bit counts, but that’s not the kind of tax relief that fuels spending or creates jobs. Consumer and business confidence comes from steady economic growth and consistently lower marginal rates.
As conservative columnist Charles Krauthammer wrote, “Even a one-year extension isn’t a tax cut; it’s a tax holiday. A two-month extension is nothing more than a long tax weekend.”
The reduction is aptly named a holiday. Like a short vacation, it’s a slight break, a momentary escape, but the brevity and impermanence mean you don’t make any life-changing decisions just because you had a nice day at the beach.
Interestingly, you never heard much about the payroll tax holiday until it was about to end. There were never any stories in 2011 of how Americans, who suddenly discovered they had another $40 in the paychecks, ran out and bought a washer and dryer or put a new roof on the house.
But once it became a tempest for the oversized political teapot in Washington over the holidays, suddenly politicians were fighting courageously to keep that two percent reduction in your payroll taxes.
Nevermind that the reduction comes from the tax on Social Security, a government agency that really could use the money, considering it’s speeding toward insolvency.
But back to Senator Rockefeller and his commentary.
“To me, there was never any doubt that we all should endorse this relief and give people more of their own money,” Rockefeller said.
The application in this case may be off, but the principle is spot on, Senator. Let’s keep that in mind when we get past the holiday, and real tax relief comes up.