July 28, 2014

Debate Continues on Payroll Tax Cut, Other Proposals

  • Social Security, established in 1935, is the federal government’s largest program. It represents approximately one-fifth of the federal budget and...

Congressional debate continues this week on plans to extend the Social Security  tax cut, unemployment benefits and other expensive provisions that are about to expire. Last week the Senate again voted down earlier Democratic and Republican proposals that would have reduced the Social Security payroll tax next year, with a number of GOP lawmakers rejecting their leadership’s plan.

On Friday House Republicans released a proposal to extend this year’s 4.2 percent rate on workers’ taxable income, which is two percentage points below the normal rate for Social Security taxes.

The House GOP legislation included extended unemployment benefits and postponement of a steep reduction in Medicare payments to health care providers, something Congress has repeatedly done in the past. The legislation also included provisions opposed by many Democrats, including a measure to hasten a large pipeline project.

Democrats have sought a 3.1 percent Social Security payroll tax rate next year and disagree with Republicans on how to pay for the proposed tax cuts and other year-end measures. The proposed tax cuts -- like this year’s cut -- would not affect Social Security benefits. But the loss of this payroll tax money increases Social Security’s reliance on general government revenues.

Members of Congress are also considering an adjustment in the alternative minimum tax to again protect middle-class taxpayers from what was originally intended as a measure to ensure reasonable taxes on high incomes.

The Concord Coalition has long argued that the government can provide effective short-term support for the economy  through measures such as extended jobless benefits while still putting long-term fiscal reforms in place to hold down government debt in the future.