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Payroll Tax Holiday Idea Gaining Support

Some buzz is building in favor of a payroll tax holiday. In a time of skyrocketing unemployment, many experts are saying that there doesn't seem to be much sense in keeping a tax that is literally a tax on employment.

Orange county tax attorneys point out that from the employee's perspective, a payroll tax is the most regressive tax imaginable: 12.4% of your salary (typically split between you and your employer) no matter how little you make, and capped at an annual salary of $106,800.

That means the tax is minimal for a millionaire and enormous for the working poor.

Arguments for eliminating or suspending payroll taxes include:

  • Lowering taxes means earners have more money to spend into the economy.
  • If we stop taxing employers for employing people, they would be encouraged to employ more people.

The White House was said to be seriously considering a payroll tax holiday before dropping the idea. Payroll taxes fund Social Security, and no Democrat is willing to support measures that could be perceived as putting Social Security at risk.

Conservatives emphasize the advantages of a payroll tax holiday for employers, liberals emphasize the benefits of a payroll tax holiday for employees. There could be a suspension of payroll taxes for either or both.

The Obama administration was rumored to be debating a range of options, such as applying it only to new hires or limiting it to small businesses.

One narrow payroll tax holiday is already in effect: Any private-sector employer hiring a worker who has been unemployed for at least 60 days does not have to pay the 6.2 percent Social Security payroll tax on that employee for the duration of 2010.

President Obama was asked recently about a payroll tax holiday.

"Well, this is something that we've examined," he said. "And we are going to be working with businesses to see does it make sense for us to initiate some additional incentives in order to hire."

Source: Huffington Post "'America Needs Jobs' Idea No. 1: A Payroll Tax Holiday" 9/21/2010

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