Posted by Katie Vlietstra - As Congress looks towards adjournment, having just completed an eight-day work period before heading out of town until after the November 6, 2012 election, elected officials have started giving the American people the “heads-up” that the Payroll Tax Holiday will indeed come to a close on December 31, 2012. Members of both parties and both Senate Finance Committee and House Ways and Means Committee have expressed that the “holiday” was just that, a reprieve for the crunched economy for a specific period of time. The end of the payroll tax holiday would impact 160 million American workers and result in removing nearly $125 billion from the still struggling economy. However, given the tax cliff facing lawmakers and individuals, the Payroll Tax holiday may be pushed down the ladder in order to deal with the bigger issue of individual income rates dramatically increasing if Congress does not act by December 31, 2012.
The challenge for lawmakers is what tax cuts they should extend by determining which ones would have the biggest impact on the economy, positively or negatively. The chief U.S. economist for JPMorgan Chase estimated the $125 billion is much smaller than the $250 billion hit on the economy if the 2001 and 2003 income tax cuts are not extended, also commonly referred to as the “Bush-era Tax Cuts.” Given the recent dire warnings from the Congressional Budget Office on the expiring income tax rates, it looks like Congress will put all its efforts in finding a compromise on the individual rates while forgoing the payroll tax holiday. As it stands, one way or another, Americans will see an increase in their taxes in 2013.
What do you think about the “tax-cliff?” The NASE wants your thoughts on how Congress should address the expiring tax cuts and put forth a long-term strategy for dealing with tax reform. Please complete our September member survey: NASE 2012- Tax Survey.