House Passes GOP Payroll Tax Package

December 14, 2011

The House last night passed legislation 234-193 to extend the payroll-tax holiday, reduce and extend unemployment benefits and avoid a 27 percent cut to Medicare doctor reimbursement. The measure, which passed with just 10 supportive Democrats, will head to the Senate where a vote is expected later this week.

Introduced by House Ways and Means Committee Chair Dave Camp (R-Mich.), the Middle Class Tax Relief and Job Creation Act of 2011 will add $25.3 billion to the federal deficit over the next 10 years, according to the Congressional Budget Office (CBO).

The bill extends the existing 2011 payroll tax holiday for employees for one year, through 2012, at a 4.2 percent rate. Only the employee-side of the payroll tax would be reduced in 2012, however—not the employer’s portion of it as has been proposed in other iterations of a payroll tax extender.

Under current law, for 2011 only, employees and the self-employed are provided a two-percentage point reduction in their Social Security payroll (or self-employment) tax rate—decreasing the rate from 6.2 percent to 4.2 percent. This reduction applies to covered wages up to the maximum amount of earnings subject to the Social Security tax ($106,800 in 2011). Under the provision in effect for 2011, the amount of revenue that is foregone to the Social Security Trust Funds as a result of the payroll tax reduction is replaced with General Fund transfers of the same amount.

Additionally, the measure extends the 100 percent bonus depreciation, as passed in 2010 by the Small Business Jobs and Credit Act, through 2012. Unfortunately, it doesn’t extend the current section 179 expensing threshold of $500,000, meaning it would drop down to $125,000 in 2012.

The plan also extends unemployment insurance benefits until Jan. 2013, but gradually reduces the length of time they can be claimed from 99 weeks to 59 weeks in a two-step process. It also includes permanent provisions allowing drug testing of applicants and would allow states to require a high school diploma or being enrolled in classes for a GED to be eligible for benefits.

H.R. 3630 offsets the costs of these extensions by gradually increasing both the amount of Medicare premiums paid by high-income beneficiaries and the number of beneficiaries required to pay these higher premiums, and by instituting certain updates in Medicare payment methodologies to reduce wasteful spending. The bill also restricts immigrants without social security numbers from receiving the refundable portion of the Child Tax Credit. It further offsets the bill by freezing federal employee pay for an additional year through 2013, and increases fees charged by Fannie Mae and Freddie Mac to lenders.

Although the House passed the bill Tuesday night, it is expected to fail in the Senate later this week.

Please click here for more on NSBA’s support of extending the payroll tax to employers.