this morning, one might get the impression that Congress has
achieved a great political breakthrough, salvaging a piece of
relief for taxpayers around the country and resolving a difficult
In truth, the legislative branch simply kicked the can down the
Trapped between the conservative wing of his own party and the
Democrats, who held the political high ground in this particular
fight, House Speaker John Boehner (R-
to extend the payroll tax cut instituted last year. That particular
cut reduced individual contributions to Social
from 6.2 to 4.2 percent, though many laborers
failed to notice it
The major problem is this: Rather than resolving to remove or
sustain the cut, the bill, dubbed HR 3765, just extends it two
months into 2012. That uncertainty causes a headache for payroll
processing companies and generally complicates the process of
- as if that wasn't already complex enough.
Via a process called 'unanimous consent," the bill passed both
houses of Congress without debate and will now go to President
Obama's desk for his signature.
Even the success of the bill will be problematic. In two months,
this debate will re-ignite, and with elections looming the stakes
will rise. Uncertainty often damages
confidence more than bad policy, and small businesses where payroll
is already complicated will be further unsettled. Equally
problematic are the bargaining chips being traded, including cuts
to unemployment benefits, tax increases on highest-paid Americans
and possible federal employee layoffs.
A new wave of austerity might hurt businesses, since laid-off
bureaucrats and those no longer receiving unemployment buy fewer
goods and services. There's also a strange effect generated by one
of the bill's compromises.
Democrats initially laid the bill out so that the 2 percent cut
applied only to the first $18,350 of pay, or one-sixth of the
$110,100 to which the original tax cut applied. Republicans
reworked that bit of the bill, allowing all of the $110,100 to get
the 2 percent cut,
reports. A company could theoretically front-load someone's salary
into the first two months of the year to take advantage of it - but
then an extra tax will kick in for returns filed in 2013.
Estimates of the costs of tax compliance in the U.S. vary, and are
often issued by organizations with a vested
in the matter. However, it's generally agreed that it reaches into
the hundreds of billions.
In the meantime, consumers can enjoy a generous 2 percent boost to
their take-home - for two months, anyhow.