By Steve Barlotta, CPA
In last month’s blog I was very critical of Congress’ passing of a two-month stop gap measure extending the 2% payroll tax cut in Social Security and Medicare withholding taxes. Under the provision passed in late December 2011, the payroll tax cut was extended through the end of February and a confusing “recapture” provision was put in place that applied to employees who received more than $18,350 in wages during the two month period. I questioned our lawmakers’ logic and good sense because it seemed pretty evident to me, that once all the grand-standing was through, the payroll tax cut would be extended for all of 2012.
Well earlier this week this law was wiped off the books as both the House and Senate voted to extend the 2% cut in Social Security and Medicare withholding taxes to 4.2% through the end of the year. This means that employees will continue to pay 4.2% on wages and self-employed individuals will pay only 10.4% on self-employment income. According to Accounting Today, the estimated cost of this provision is $93.219 billion over 11 years. I’m still amazed by the blatant disregard our lawmakers in Washington have for the time and cost that was passed on to businesses who had no choice but to implement the “recapture” rules only to have them reversed. This another example of the inefficiencies of Washington directly affecting Main Street U.S.A.
This bill would also decrease the maximum number of weeks of unemployment insurance from 99 to 73 in some states. This change would be gradually phased-in, giving consideration to those areas of our nation that have been hardest-hit by the economic downturn.
Over the past few months, we have heard President Obama touting his proposal to impose a minimum 30 percent tax rate on individuals who make over a $1 million a year. You probably know it better as the “Buffet Rule”, which is a major component of the President’s Fair Share legislation which he has been pushing on the campaign trail. The rule is named after billionaire investor Warren Buffet, who said that it was unfair that his effective tax-rate of 17.4 percent was lower than the rate “paid by any of the other 20 people” in his office.The Obama administration has said repeatedly that enacting this policy is a matter of economic fairness, and that it is the centerpiece of reducing future deficits.