But this time around there might be some common ground to be found among the dueling parties. Or not.
Employees have had their payroll tax rate reduced 2 percent over the last year, but that cut is set to expire Dec. 31. However, each side of the political aisle is offering to extend what’s being called a payroll tax “holiday” for an additional year.
But Democrats and Republicans split from here.
Democrats not only want to extend the payroll tax cut, they also want to expand it to 3 percent, bringing employees’ rate down to 3.2 percent of covered earnings. They also propose reducing the payroll tax on employers.
To pay for these tax breaks, Democrats want to impose a 3.25 percent surtax on those Americans making more than $1 million.
Republicans, on the other hand, have proposed extending the current payroll tax cut but do not want it expanded to include employers. In a bill introduced Wednesday by Sen. Dean Heller (R-Nevada), conservatives intend to pay for the tax break with a three-year freeze on government workers’ salaries and by contracting the federal workforce by 10 percent.
Republicans also want Americans earning more than $1 million to pay more for Medicare, though conservatives stringently oppose a surtax on the wealthiest earners.
As with any political issue involving money, the nation’s debt comes into play. So with the battle lines drawn, liberals and conservatives will have to make their cases as an election year looms.
“There are clearly two sides to this argument,” said Jim Nelson, executive director of the Nevada Association of Employers. “One side says that this tax cut will help small business thrive and hire more employees. The other side says this adds to the deficit.”
The national unemployment rate hovers around 9 percent while Nevada’s jobless rate hangs near 13 percent month in and month out. Most economists agree that job creation is the single biggest factor inhibiting a full-fledged economic recovery. The lack of new hiring also remains the biggest threat to an economy dangerously close to plummeting into another recession.
“As an advocate for business, and mostly small businesses, I support whatever the government can do to spur growth,” Nelson said.
But if the payroll tax cut helps job growth and struggling middle-class families, as proponents suggest, then it also certainly adds to the nation’s debt. And the United States is running up uncontrollable levels of debt, which threatens to destabilize markets worldwide.
Another sticking point in the debate is the fact that payroll tax revenues are deposited into the Social Security trust fund, which already is in some jeopardy of becoming insolvent in the next two or three decades.
Democrats want to make up the shortfall by transferring general fund dollars into the Social Security fund. Covering the general fund shortfall then falls to lines of credit or the proposed tax on millionaires.
“While it is argued that that money will be made up with general fund dollars,” said Tray Abney, director of government relations for The Chamber, “those dollars are nothing more than more debt being issued that will be placed on the backs of my children and future generations.”
So it appears that the payroll tax cut debate, like others in recent years, comes down to short-term stimulus versus long-term debt reduction.
“If there is tax reform down the line that is bipartisan, then great,” Nelson said. “But for now, we need to recognize how important small business is to our economic health and support it any way we can.”
“The problem with this proposal is that it is yet another temporary solution to a very large and very serious problem,” Abney said. “We really need to be focused on simplifying the entire tax code and making it easier for businesses to comply with it.”