Industry News - Regulatory Updates

November 30, 2011

Payroll tax cut debate shifts

Legislators' debate about the proposed payroll tax cut extension and expansion has become increasingly focused on how to pay for the measure, Bloomberg reports.

The original proposal would compensate the government for the lost revenue by levying a 3.25 percent surtax on taxpayers with annual incomes above $1 million, a step which met with significant opposition. Some objected partly on the grounds that while the tax cut would be temporary, the surtax would be a permanent measure, the news source states.

Some lawmakers also indicated such a tax would hurt small business owners and job creation. While most day traders would not be directly affected by this, the broader economic effects could slow or speed economic growth and any who receive salaries or pay employees might see a change, legislators told Bloomberg.

Opponents of the original proposal have put forth countervailing suggestions, including at least one recommendation that the payroll tax cut be extended without including a way to recover the lost federal revenue in the bill.

Others have revisited the broader debate about taxes and spending and recommended an alternative.These individuals propose the government change eligibility standards for a number of programs providing food stamps, unemployment assistance and healthcare for the elderly, as well as extending the pay freeze on federal employees, which is already scheduled to last through 2012.

The payroll tax rate for employees currently stands at 4.2 percent, and will rise back up 6.2 percent if legislators do not come to a decision and successfully pass a bill be the end of December.

According to The Associated Press, economists state that allowing the cut to lapse will slow economic growth. As a result, even legislators who believe the measure has had little benefit for the economy are considering it.