Tax moves to make in December 2011
Year-end giving moves, December 2011

Democrats, Republicans duking it out over payroll tax cuts

We all knew that members of Congress too often act like kids. Now the payroll tax cut issue has taken on the air of a recess scuffle.

Obama has essentially dared Republicans to go ahead, vote down a payroll tax cut for workers because it includes a surtax on millionaires. The Democrats on Capitol Hill cheered on the president's challenge, and now he has some data to back him up.

The U.S. Treasury's Office of Tax Policy has issued a report entitled A State-by-State Look at the President's Payroll Tax Cuts for Middle-Class Families.

It's not exactly like calling on your parents to break up a fight, but it's close.

Here's what Treasury numbers crunchers have to say about the tax relief via reduction in the employee Social Security tax rate from 6.2 percent to 4.2 percent that was part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010:

  • $109 billion in overall tax relief: The payroll tax cut is providing an estimated $108.6 billion in tax relief throughout 2011 to working Americans.
  • Tax cut for 159 million workers: The payroll tax rate cut has resulted in an estimated 158.9 million working Americans receiving larger paychecks in 2011.
  • A tax cut of about $1,000 for a typical family: For a family with wages or salaries of $50,000 per year, about the median household income, the payroll tax cut equals $1,000.
  • No effect on Social Security solvency: The legislation provided that the Social Security Trust Fund be made whole by transfers from the General Fund. Thus, the reduction in Social Security taxes paid by employees had no effect on the Social Security Trust Fund and no effect on individuals' current or future Social Security benefits.

For 2011, according to Treasury, the bottom line is that almost 159 million taxpayers have enjoyed a payroll tax cut amounting to a total of $108.6 billion

OK. Treasury is now staffed by Obama Administration personnel, so it's no surprise that those folks think the payroll tax cut is great. Like I said, the report is sort of akin to calling on a relative for help.

Projections of 2012 tax cut relief: But still, they have numbers, lots and lots of numbers.

In addition to calculating the benefits of the 2 percentage point payroll tax cut that lowered the 6.2 percent tax to 4.2 percent this year, Treasury examined the projected benefits of the suggested expansion of the payroll tax cut.

The Democrats' plan now under debate calls for the payroll tax on workers to be halved. That means a 3.1 percentage point reduction, making the take out of each worker's paycheck in 2012 only 3.1 percent in 2012.

The Treasury table below shows how that would play out across the country.

State-by-State Estimates
Proposed 3.1 Percentage Point Cut

in the Employee Payroll Tax in 2012

State People affected
(in millions)
Dollar Amount
(in billions)
Alabama 2.4 $2.3
Alaska 0.4 $0.4
Arizona 3.0 $3.2
Arkansas 1.5 $1.3
California 17.0 $20.7
Colorado 2.5 $2.9
Connecticut 2.0 $2.6
Delaware 0.5 $0.6
Florida 9.1 $9.3
Georgia 4.7 $5.0
Hawaii 0.7 $0.8
Idaho 0.8 $0.7
Illinois 6.6 $7.6
Indiana 3.7 $3.7
Iowa 1.8 $1.8
Kansas 1.6 $1.7
Kentucky 2.2 $2.1
Louisiana 2.2 $2.2
Maine 0.8 $0.7
Maryland 3.2 $4.3
Massachusetts 3.5 $4.5
Michigan 5.2 $5.5
Minnesota 3.2 $3.7
Mississippi 1.4 $1.3
Missouri 3.1 $3.1
Montana 0.6 $0.5
Nebraska 1.1 $1.1
Nevada 1.2 $1.2
New Hampshire 0.8 $1.0
New Jersey 4.8 $6.7
New Mexico 0.9 $0.9
New York 10.3 $12.8
North Carolina 4.8 $5.0
North Dakota 0.4 $0.4
Ohio 5.8 $5.8
Oklahoma 1.9 $1.9
Oregon 2.0 $2.1
Pennsylvania 6.8 $7.8
Rhode Island 0.6 $0.7
South Carolina 2.3 $2.2
South Dakota 0.5 $0.4
Tennessee 3.3 $3.2
Texas 11.6 $12.8
Utah 1.4 $1.4
Vermont 0.4 $0.4
Virginia 4.4 $5.4
Washington 3.5 $4.4
West Virginia 0.9 $0.9
Wisconsin 3.2 $3.5
Wyoming 0.3 $0.4
District of Columbia 0.4 $0.6
Puerto Rico 1.2 $0.8
Other Areas 3.0 $2.3
United States total
161.2 $178.8

To pay for the additional 1.1 percent cut, the Democrats want to tax millionaires' (and above) income an additional 3.25 percent.

The GOP has offered its own payroll tax plan that draws in part from Obama's own bipartisan National Commission on Fiscal Responsibility and Reform, aka the Simpson-Bowles group.

The Republican plan would maintain for one year the current 4.2 percent payroll tax rate. It would pay for the continued cut by freezing federal employees' pay for three years, shrinking the size of federal government through attrition and establishing means testing for eligibility for food stamps, unemployment benefits and Medicare.

Which side will win? We'll get some indication later today -- probably much, much later -- when the Senate starts taking votes on the payroll tax proposal.

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Barbara Cruz @ Tax Relief

Kids is an understatement. They are argueing about things that dont matter and never will. There just wasteing time to keep there nice job and fat paychecks coming in. It will be amazing if anything gets done in the way of real new taxes and real new cuts.


You're absolutely on target when you say they act like kids. I'm not sure I would have been so kind. I also don't think that the answer "tax the wealthy" is the right thing to do. The wealthy, for the most part, help to create jobs that we are in dire need of now. I don't believe that they should get off tax free either, and there has to be a middle ground where it's fair for everyone. At least we aren't like the wealthy in Italy where it is fashionable to be a tax evader! Go figure.

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