SENATE RUNS OUT OF TOWN REFUSING TAX BREAK TO WORKERS

The Senate's Awful Two-Month Payroll Tax Extension by Nathaniel Ward

Senate Majority Leader Harry Reid (D-NV). Photo: Flickr/Joe Newman Congress still has yet to act on an important issue: renewal of the payroll tax “holiday,” which is set to expire at the end of the year. Instead, lawmakers are playing political games. The Senate passed a temporary two-month extension of the tax break–and then left town, daring the House to reject it. (The House did reject it, holding out for at a one-year extension–a policy even President Obama favors–and some modest reforms.) The Senate’s two-month extension, The Heritage Foundation’s Alison Fraser explains, is awful policy:  For example, working Americans have no assurance that they will not have a tax hike when the two-month extension expires. Plus, this will actually add costs and complexity for the nation’s employers by requiring additional changes to their payroll systems to accommodate a potential series of changes based on when the Senate and the House do finally come to agreement. The short-term punt will be especially burdensome to smaller businesses who generally have “off the shelf” payroll applications or who still do payroll by hand. And, to make things even more complicated, the Senate short-cut version adds even more layers of complexity for what should be a simple extension. The Senate bill limits the amount of income that qualifies for payroll tax relief so that upper-income earners don’t get more than their “fair share” of the tax relief during this brief two-month period. Even a “simple” kick-the-can-down-the-road piece of legislation was infused with a class warfare mentality. The very concept of a temporary payroll tax holiday is premised on “the faulty Keynesian stimulus philosophy,” Heritage economist J.D. Foster explains. While raising taxes in a recession is a bad idea, a better solution would be to permanently lower tax rates (perhaps through a flat tax), cut spending, and slash red tape. What do you think? Is a two-month payroll-tax extension the best we can hope for?