Capitol Hill is preparing for another battle this week. This stage in the war is over payroll taxes, and whether to end, extend or expand the two- percent cut that is set to expire December 31st. The House passed a bill on Tuesday, but it is unlikely to get through the Senate.
A tax cut is simply reducing income for the Government to help stimulate growth in another area. This tax cut stripped some income from Social Security and decreased federal revenues by $112 billion in 2011.
The idea was to leave more money in the pockets of the current working Americans as opposed to fund the trust fund for Social Security thus stimulating more spending and potentially more employment.
The Social Security trust fund has been an area of concern for many years and continues to be a place of concern for lawmakers and citizens.
So, here is where the two parties stand heading into battle this weekend. Senate Democrats want to further reduce the tax breaks from 6.2 percent to 3.1 percent. It would also cut the business owner’s share of the payroll tax down to 3.1 percent.
The Republicans aren’t sure they want to extend the cut knowing that it funds Social Security and they are looking to keep that secure in the future.
So, what does this mean to you? Well, if the tax break doesn’t get extended then every paycheck will decrease on January 1. The flip side is if it does get extended or even increased then you may not have a Social Security check come retirement time or it might be reduced.
My prediction: They will not do anything and will have a meeting on December 31st to extend the current cut at its current level because that is the new status quo.
So, where do you sit? Your options are to pay for it today in an environment of unemployment, foreclosures, and bankruptcies. Or pass along the payments to our children or even grandchildren?
Again, it is debits and credits, and right now they don’t balance.
It is almost the end of the year; feel free to stop by any of our offices to help you understand your tax situation.