In this second part of the halftime report for Tax Foundation Forum: Making Sense of Profit Shifting, we discuss the key takeaways from the first half of our series on profit shifting (read part I here). In this post, we...
- The Tax Policy Blog
- Middle Class Tax Relief & Job Creation Act Would Exte...
Middle Class Tax Relief & Job Creation Act Would Extend the Payroll Tax Holiday at a Cost
Chairman Dave Camp of the House Ways and Means Committee recently introduced the Middle Class Tax Relief & Job Creation Act. The act would extend the current payroll tax holiday and tackle sundry other reforms.
3. Unemployment insurance
5. Health care
6. "Protection of taxpayer dollars"
Though every provision should receive considerable attention form legislators, (1) and (6) are of the most interest to those concerned about changes in tax policy.
The bill would extend the current payroll tax holiday, holding employee payroll tax rates at 4.2 percent (10.4 percent for the self-employed). It would not reduce employers' payroll tax rates. 100 percent expensing would also be extended for the next calendar year, the goal of which being to free up business resources which can then be used to hire new workers and decrease unemployment.
To protect taxpayer dollars, the bill seeks to prevent fraud and abuse of the Additional Child Tax Credit (ACTC) program by requiring individuals to include their Social Security number on their tax return in order to claim the credit. This legislation also incorporates a recommendation from President Obama to prevent Social Security overpayments by improving coordination with State and local governments.
To prevent further erosion of the Social Security Trust Fund, revenue that would have been otherwise collected via a the normal 6.2 percent payroll tax will come out of the Treasury's general fund. Indeed, most of the bill requires that revenue collected from broadband auctions, for instance, would go to the general fund and earmarked to decrease the national deficit. So to make things clear, the general fund would pay for the payroll tax cut but revenues brought in by other provisions of the bill and exceeding a certain threshold would go to the general fund but be restricted to the use of deficit reduction.
Taking the bill apart in its entirety is difficult, but the Congressional Budget has already scored it. According to the CBO and Joint Committee on Taxation, the passage of the Middle Class Tax Relief & Job Creation Act would result in a $25.3 billion increase in the deficit.
The bill may be the most politically feasible proposal put forth as of yet, but the purpose is really to put together enough elements of compromise to extend the politically popular (and expensive) payroll tax holiday.
Tax holidays increase uncertainty for individuals and businesses. What may be worse in this case, however, is that the holiday has a real chance of becoming a permanent part of the American tax fabric. This "permanent holiday" status will either result in [further] bankrupting the Social Security Trust Fund or eventually forcing legislators to consider real reform to the program itself.
If approved, let us hope that the bill accomplishes the latter.
Follow David S. Logan on Twitter @Loganomix
Get Email Updates from the Tax Foundation
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.