Chicago Sun-Times
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Obama's payroll tax cuts could speed cash to workers, business

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WASHINGTON -- President Barack Obama's latest job creation package contains long- and short-term proposals to jolt the economy, with expansion of the payroll tax cut to employers -- and a bigger reduction for workers -- one of the centerpieces of his $447 billion plan.

With the jobless rate stuck around 9 percent -- and the terrible news last month that employers overall were not generating new jobs, Obama's biggest threat to his re-election is not his GOP 2012 rivals but lingering unemployment.

Republicans and Democrats face a deep ideological divide on how to create more jobs.

Democrats have been favoring spending, and while Obama's massive $825 billion economic stimulus plan passed by Congress in February 2009 may have stopped the bleeding, it did not heal the wound.

Republicans will certainly be skeptical of the $447 billion price tag -- Obama did not mention that number in his speech Thursday night before a joint session of Congress -- and most recently they have been emphasizing that regulations are strangling business and that's why more jobs are not being created.

A senior administration official said during a briefing Thursday that temporary payroll tax cuts are an "elegant'' economic tool because they go to every worker who gets a paycheck and every business with salaried employees.

It is potentially a very fast way to get money out the door and into peoples' hands -- much quicker than other Obama proposals such as rehabbing and modernizing school buildings and building more multimodal transporation projects, which take a few years.

The Social Security payroll tax is 6.2 percent for workers and companies. This year, under a measure Congress approved in 2010, that rate dropped to 4.2 percent for workers and no break for firms. That break was to last only one year.

Obama is proposing that workers pay only 3.1 percent in extending the break for another year. For someone earning $106,800 or more -- (taxes on Social Security are capped on the first $106,800 in wages), the savings is about $3,300 a year. If you make $1,000 a week, you paid $62 dollars a week for Social Security in 2010, $42 weekly in 2011 and you would pay $31 in 2012.

Obama is asking Congress to allow companies to pay half the tax -- 3.1 percent on the first $5 million in payroll, a feature intended to especially help small firms. Employers would further save money if they hired new workers or gave raises because under Obama's plan, they would not have to pay any payroll taxes for them. This provision would be capped at a $50 million payroll.

The money helps the economy if people spend it and if companies use the savings to invest in people or the business.

After I wrote Wednesday that the payroll tax break workers get is the best break a lot of people don't know about, I got several e-mails from Chicagoans who said higher gas prices and an Illinois income tax increase swallowed the gains. A temporary federal payroll tax break also serves as a buffer for other hits to the wallet people face in this lousy economy.

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Lynn Sweet

Lynn Sweet is a columnist and the Washington Bureau Chief for the Chicago Sun-Times.

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About this Entry

This page contains a single entry by Lynn Sweet published on September 9, 2011 8:49 AM.

President Obama official schedule and guidance, Sept. 9, 2011. Richmond jobs speech, new Libya ambassador was the previous entry in this blog.

Rahm Emanuel's Sept. 9, 2011 public schedule. Arne Duncan, U.S. trade pact negotiations reception is the next entry in this blog.

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