Payroll Tax Cuts v. Bush Tax Cuts: Real Relief for the Plumber and Other Average Joes

Abstract

Recent history has shown not only that the Bush Tax Cuts have produced soaring federal budget deficits but also that they have failed to enhance economic output and employment; more of the same simply enhances downside potential. Although many blindly insist that the Bush Tax Cuts be made permanent, experts contend that payroll tax cuts to employees are likely to prove far more effective at stimulating the economy. Furthermore, extension of payroll tax relief to specific employers would magnify the positive impact on the economy. Beyond those realities, payroll tax cuts offer relief to a very broad base of wage-earners. At the same time that the wealthiest Americans enjoyed considerable tax relief, workers suffered regular increases in the FICA Wage Base. Currently, taxpayers face a payroll tax rate hike in 2012 as well as an increase in the FICA Wage Base to $110,100. Although many lower-wage workers enjoyed a degree of Bush Tax Cut relief, a substantial percentage of those apparent savings were clawed back, in some instances, by notable increases on the payroll tax side; the wealthiest taxpayers managed to keep the lion’s share of their Bush Tax Cut savings. Vertical taxpayer equity dictates that payroll tax relief take clear precedence over any effort to extend ineffective and inefficient tax relief in the progressive rate structure.