Inspired by IBD, “Bail Out Bill Or Bail Out Joe?”, December 04, 2008
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From the article
Nancy Pelosi (wants) another bailout bill in the neighborhood of $500 billion to be ready for President Obama’s signature on Jan. 20.
Rep. Louie Gohmert, R-Texas, has come up with an idea of what to do with that $350 billion, and it involves not rescuing those who have gummed up the works, but relieving the burden on those who have been trying to pull the wagon — suspend FICA and income taxes for two months starting in January 2009.
Gohmert would declare a tax holiday for FICA (Social Security and Medicare) and income taxes.
American taxpayers [a slim majority of adults] pay an average of 25% of their wages in federal income taxes. [Virtually all American workers pay another 7.25% for FICA — which funds Social Security and Medicare.]
So, in aggregate, Americans pay over $101 billion in income taxes and another $66.5 billion in FICA taxes each month. Two months’ worth is around $332 billion. The employer’s portion of FICA would also be suspended, giving businesses large and small $65 billion in tax relief to expand and hire more workers.
[For an average American family making about $50,000 a year, the FICA tax is about $300 per month — taken directly out of their paychecks.] So, there would be a dramatic increase in take-home pay for the working poor and middle class, and might save more homeowners from bankruptcy and foreclosure.
And, the unspent $350 billion left in the government’s TARP fund could be used to cover the revenue losses in the Treasury, so Social Security and Medicare would not lose a penny.
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Ken’s Take
(1) The income tax part is a non-starter for reasons of “fairness” and administration — since withholding doesn’t match perfectly with end-of-year tax liabilities. Some people have too much withheld and get refunds; some have too little withheld and pay taxes on April 15.
(2) But, I think the the FICA suspension has merit. Prior to the election, I was opposed to co-mingling income taxes with “contributions” to the Social Security and Medicare Trust Funds (they’re called “contributions” in the statutes). But, Obama’s “relief” to the middle class irreversibly lumps them together — folks who don’t pay income taxes get credit checks if they pay so-called payroll taxes.
(3) So, why not dole out the payroll tax related tax relief in the fastest, administratively easiest way. Ditch the income tax part of the proposal and suspend FICA for a couple of months.
I think IBD screwed up the math a bit. Employers have to match employees’ FICA contributions dollar-for-dollar — so the FICA free-up would be about $130 billion per month.
The FICA tax holiday could be extended to 3 or 4 or 5 months by simply capping the monthly “holiday” at, say, $300 per worker so that high income folks don’t get too much of the benefit .
(4) While I still don’t like the co-mingling of income taxes and SS-Medicare contributions, I do like the potential stimulative aspects of the plan: (a) the paycheck effect of the plan would be significant to lower income folks (b) businesses — especially those employing lower and middle income folks get a tax break — which allows them to hire more workers (or stay in business).
(5) Note: this is largely Obama’s middle class tax relief — “rebranding” the philosophically repulsive “refundable tax credits” and adding some tax relief for employers.
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Full IBD article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=313284571794137
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