Payroll-tax break has bleak future

While the economy and proposals to help middle-income Americans have dominated the election season rhetoric, a payroll-tax cut that has put an extra $20 a week in the pockets of many workers since last year seems likely to die a quiet death in January.

Congressional leaders say they’re not inclined to renew the Social Security payroll-tax “holiday” — which took effect in 2011 as a temporary means to jump-start the economy — because they say the benefits have been negligible. And neither the Obama administration nor Republican presidential nominee Mitt Romney has pushed for an extension.

Sen. Orrin G. Hatch of Utah, the top Republican on the Senate Finance Committee, said there is bipartisan support to let the temporary reduction in payroll taxes expire “given its long-term implications on Social Security and its questionable impact on the economy.”

“We don’t need more temporary stimulus measures. We need a long-term pro-growth tax policy that will give the American people certainty, help expand the economy and create new jobs,” he said.

House Ways and Means Committee Chairman Dave Camp, the Michigan Republican whose panel is Congress’ tax-writing body, also has said he’s not in favor of renewing the cuts because they failed to live up to expectations and could threaten the solvency of Social Security.

“In addition to the devastating long-term impact this temporary policy has had on the Social Security Trust Fund, the payroll-tax holiday has not yielded the boost to the economy that was promised,” said a senior aide to the Ways and Means Committee.

In February, Congress approved a 10-month extension of the Social Security payroll-tax holiday, as neither party wanted to face the charge from voters that they had raised taxes in an election year. The holiday is worth $1,000 to a worker earning $50,000 annually, and as much as $4,500 for a dual-earner family with six-figure incomes.

Social Security is funded by a 12.4 percent tax on wages up to $110,100, rising to $113,700 in 2013. Half is paid by employers and the other half is paid by workers. For 2011 and 2012, Congress and Mr. Obama cut the share paid by workers from 6.2 percent to 4.2 percent.

But with the economy stabilizing and an unemployment rate that dipped below 8 percent this month for the first time since Mr. Obama took office, this is little momentum on Capitol Hill to extend it beyond this year.

AARP, the nation’s largest advocacy group for seniors, has come out strongly against an extension, saying to do so would severely undermine Social Security’s long-term funding stream.

“As we continue to recover from difficult economic conditions, we must remember the critical importance of Social Security for both current and future generations of Americans,” AARP Chief Executive Officer A. Barry Rand said in letter to Congress last week.

“We must ensure that efforts to promote economic health do not undermine the single most important source of retirement and disability income for millions of workers and their families.”

Treasury Secretary Timothy F. Geithner, while supporting the initial tax holiday and the 10-month extension as a way to shore up the wobbly economy, told Congress earlier this year there was no reason to extend it beyond 2012.

But a small number of Democrats have expressed a reluctance to let the payroll-tax holiday expire without debate. Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, told C-SPAN recently the tax cut “needs to be part of the conversation.” Lawrence H. Summers, a former top Obama administration economic adviser, also has suggested extending the cuts has merit.

Senate Majority Leader Harry Reid, Nevada Democrat, hasn’t taken a hard stance on the whether to extend the cuts.

A senior Democratic Senate aide said that “all options should be on the table.”

The payroll-tax cuts have been overshadowed by the fight over the fate of the George W. Bush-era tax cuts that also expire in January.

Mr. Obama and most Democrats want to extend them only for individuals making less than $200,000 and couples earning less than $250,000, while Republicans want to continue the cuts for everyone.

This story was based in part on wire service reports.