Payroll tax decision nears end of the year deadline

Gregory Warner Dec 6, 2011

Jeremy Hobson: Well in Washington, Senate Democrats want another vote this week on extending a payroll tax cut for workers. But Republicans say they can’t support the Democratic proposal. And if no deal is reached by the end of the year, the Treasury department says the average family will pay $1,000 a year more in taxes.

Marketplace’s Gregory Warner reports.

Gregory Warner: Back in 1935, Franklin Roosevelt introduced the payroll tax so that everyone would chip in to Social Security.

Richard DeKaser: Something that everyone would buy into politically. It wouldn’t be class warfare, rich against poor but something that all Americans were equally invested in.

Richard DeKaser is Deputy Chief Economist with the Parthenon Group.

That tax was cut by 2 percent last year. President Obama has proposed extending the tax break to next year as well. The political debate is over how to keep paying for Social Security if that occurs. Democrats want to tax millionaires; Republicans want to increase premiums for Medicare. Richard DeKaser says that cutting payroll taxes is a good way to stimulate the economy.

DeKaser: It’s targeted to low and moderate income individuals. These are folks who spend every dime that they can get their hands on — especially in bad economic times like the present. More income to these individuals more rapidly translates through to direct spending in our economy.

And that’s a message even Roosevelt could have gotten behind.

In Philadelphia I’m Gregory Warner for Marketplace.

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