Help me out here: the House Republicans voted in favour of raising payroll taxes?

I’m not following this at all.

First, what are the “payroll taxes” I’m seeing mentioned in the news?

Second, why did the House Republicans vote against extending the existing tax holiday, which would have raised payroll taxes for most workers?

Things are getting weirder on the Potomac.

FICA. Social Security. It was cut last year, and the cut would expire if not extended.

Supposedly, they didn’t want to vote just a temporary fix (it’s only good for 2 months) and they also want to have it paid for by some other offset. But they’re probably really against it because it was Obama’s idea.

As I understand it, the taxes in question are Social Security taxes, which are taken out of (nearly) everybody’s paychecks to fund the Social Security system. The normal rate on this tax is 6.2%, on the first $110,100 of your wages each year. At some point in the last couple of years (I’m not sure exactly when), this tax rate was temporarily reduced to 4.2%, in an effort to give people a little more in their paychecks during the recession.

Hard to say. What happened was this:

  • Congress had been unable to reach a compromise on extending the tax cut (which had originally been set to expire at the end of the calendar year).

  • Last weekend, the Senate reached a compromise which extended the cut for two more months (to give them time to get to a longer-term solution).

  • The House balked on this, feeling that this solution just kicked the can down the street a bit (apparently, the House had reached some sort of compromise earlier which would have extended the tax cut for all of 2012).

It seems like the House Republicans wanted a bigger deal, and incorporating more cuts in government spending (which plays well with their base).

When they didn’t get that, they grandstanded at first, until they realized that they weren’t going to win public opinion on the issue, and were being portrayed as being about to raise taxes (a kiss-of-death issue for Republicans).

Good point. And, they fight anything that could possibly make Obama look good, because they desperately don’t want to give him a single bit of positive news he can use in his re-election.

Not only do they fight anything that might make Obama look good, they don’t seem to get the idea that fighting some of those things will make them look very, very bad. :smack:

Why, its the uncertainty, don’t you know? America’s small business owners and job creators cannot be sure of the tax situation in the foreseeable future, they writhe on the tenterhooks of uncertainty! This is why they don’t hire! Sure, the lack of customers is a factor, but the overwhelming burden of uncertainty - clearly, Obama’s fault!

For non-Americans who might not be familiar with US taxes:

The payroll tax (FICA) funds Social Security. Employers and employees both pay 6.2% of the employee’s wages in FICA, on the first $110,100 (the idea was originally to set the bar at the 90th percentile, but I believe it’s fallen a bit lower over the years). Payroll taxes don’t get all those nice deductions that the federal income tax gets. Consequently, at the lower end of the income scale, FICA makes up a bigger tax bite than the income tax. When people discuss the “lucky duckies,” the 47% of the country who don’t pay income tax, they aren’t talking about FICA. FICA hits a lot more people than the income tax. The wealthy, on the other hand, pay very little as a percentage of their income in FICA.

As mentioned, Congress provided “stimulus” in the form of a cut in the payroll tax rate to 4.2%, using (largely borrowed) money from the general fund to pay Social Security instead. I believe this was part of the compromise that Congress reached in the lame-duck session at the end of 2010. It replaced a previous stimulus measure, the Making Work Pay Tax Credit, which was a simple $400 tax credit for most middle-class and lower taxpayers that expired at the end of 2010.

FICA is also regressive, thanks to the cap slightly above $100,000. The only time I’ve never paid FICA was when I was receiving a stipend in graduate school and was taking a full-time load (9 credits). Two percent is nice, but 6.2% for 8 or 9 months is a ton of money when your total pay for a year is about 20k.

The FICA tax is capped because while the amount of Social Security benefits that you get is based on the salary that you made, that amount is capped as well. At some point, you will get taxed more over your lifetime than you could ever possibly get back no matter how long you live. Social Security is supposed to be a forced savings plan that earns interest.

Just to be clear, are you saying that businesses are going to hire people because of a 2 month tax cut?

I suspect he’s saying that the thought that businesses will hold off on hiring people because they don’t know if the the FICA tax cut will or will not remain is pretty ludicrous. Consider that the difference between what an employer will have to pay on an individual worker is no more than $2,222 (and, for a worker making, say, $50K a year, it’s $1,000)…I just have a very hard time believing that it’s going to have a significant impact on hiring decisions.

I remember when that first went into effect and I hadn’t heard about it. I called my accountant in a panic on payday trying to figure out why my employee and employer contributions weren’t matching up in Quickbooks.

It seems to me the argument isn’t that cutting payroll taxes will cause businesses to hire more (on account of not having to pay out as much in payroll taxes for their prospective new employees), but that it will cause the employees who are recipients of the tax cut to spend more. The same is true with the extension of unemployment benefits–it will get more money to people who will turn around and go out and spend it.

Politically, of course, saying “Hey, Joe Citizen and Jane Voter, here’s an extra forty bucks in your paycheck!” has an obvious appeal to a politician seeking re-election. In terms of substantive economic policy, I would think the main argument for this is as a stimulus to economic demand, which in turn will (indirectly) help hiring and the unemployment stats–all those extra $40 pizza nights mean the pizza place down the street will, even if they don’t hire anybody new, at least not have to lay off anybody else.

Why, no, John, whatever made you imagine I would say something so transparently simple-minded? I guess the question answers itself, doesn’t it?

But now that you mention it, outside of the sensible responses above (in which I concur), I would opine that I don’t, in fact, think we are talking about a two month extension, I suspect this one will see a longer life than that. The fanatic wing of the Pubbies has shot their bolt and blown their wad, they have overreached. Boehner weeps in the halls of Congress tonight, because Obama has made him his bitch. And you know what they say, once you’ve gone Barrack…

So, no, this marginal effort is not likely to turn the economy around and scoot it in the right direction, all by itself with its own little pink patty paws. But its a start. I expect more substantial victories as the Pubbies trudge through the snows in their retreat from Palingrad, dogged by partisan gorillas in their midst…

They didn’t. The House wanted a year long extension. The Senate balked at it and finally came up with a two month crumb.

Especially when they fought tooth-and-nail to preserve the Bush tax cuts on the top earners.

To be fair they are not fighting it because it’s Obama’s idea. They are fighting it because they want to trade something Obama doesn’t want to do.

So Obama gives on something he doesn’t want to do, to get this. This makes Mr Obama look good and the concession they received makes them look good and the whole country thinks both sides are stupid.

And the same thing would happen if the Republicans held the presidency and the Democrats held the house.

It’s nothing really knew with American politics

Then why did so many Republican senators vote for it?

Just to be clear, the standard tax is 12.4% (6.2 each from employer, employee). With the temporary reduction the tax is 10.4%, only the employee portion reduced.

(When the medical tax, unreduced, is included in “total payroll tax”, the reduction appears even smaller, as a portion of total tax.)

As pointed out above, it’s not all that regressive if you look at contributions as they relate to benefits.

In addition to this 2% reduction in contributions, the Earned Income Credit reduces the amount that the lowest earners pay into the system… without affecting their benefits.

Doesn’t look like a good path to be going down to me.