Is Obama thinking about joining 5 rural Georgia Democrats in jumping ship? - (1) Deal Struck on Tax Package & (2) Payroll Tax Cut: A Short Primer
President Barack Obama reached agreement Monday with Republican leaders in Congress on a broad tax package that would extend the Bush-era income tax cuts for two years, reduce worker payroll taxes for one year and give more favorable treatment to business investments.
Mr. Obama acknowledged that the agreement marked a significant reversal for him, as he has long argued that income tax cuts for couples earning more than $250,000 should expire.
As part of the deal, the White House is proposing a provision to encourage more investment in plant and equipment, by letting companies claim deductions on 100% of most kinds of investment.
[And with regard to his proposal on investment in plants and equipment, I must say, "Thanks so much Mr. President; my business and America sure needed that. Great job. Great to have such a fearless and unfeared leader."]
For Mr. Obama, reaching a deal with the GOP on taxes could help him score points with moderates and independents, an increasingly important constituency, by underscoring his ability to work with newly empowered Republicans.
The payroll-tax reduction under discussion now would cut the 6.2% Social Security tax levied on a worker's wages to 4.2%. A worker making $40,000 a year would save $800, and some economists say that could help stimulate demand at a time when the economy remains relatively weak.
The employer's half of the tax—also 6.2%—wouldn't be affected under the White House proposal, and thus the cost of hiring new workers wouldn't be directly affected.
The payroll tax reduction would take the place of a $400-per-worker income-tax break that Mr. Obama included in the 2009 stimulus bill. That break, known as Making Work Pay, provides a tax credit of 6.2% on the first $6,450 of a worker's wages. It phases out for workers making more than $75,000.
Some Republicans prefer the payroll tax reduction to the Making Work Pay program because it goes to everyone who works, regardless of income. A senior administration official said that the payroll tax cut would cost $120 billion, twice that of Making Work Pay, and would give bigger benefits to some low-income workers.
And also from The Wall Street Journal, "Payroll Tax Cut: A Short Primer":
The proposed 2% rollback of individuals' payroll taxes used to fund Social Security is the latest iteration of an idea that's been kicked around for years as a way to supplement incomes and boost economic growth.
Under the plan, the Social Security payroll tax on individual wages would be lowered to 4.2% in 2011, from the current 6.2% rate.
A worker earning $70,000 would pocket $1,400 as a result of the tax cut. Social Security taxes apply only to the first $106,800 in wages, so the benefit for high earners tops out around $2,100. The employer share of Social Security taxes would not be affected.
Obama administration officials say there would be no effect on Social Security benefits or long-term solvency. But the government would have to borrow to make up the lost revenue to the Social Security trust fund. The plan's detractors say it would undermine the program and likely become permanent.
How much it would affect the economy is open to debate. The one-year cut would total $120 billion.
Proponents of payroll tax cuts argue that they are effective stimulus because they can be delivered quickly. Also, because they are concentrated on lower and middle-income workers, they are more likely to be pumped into the economy through increased consumer spending. Both of those are reasons a bipartisan task force chaired by former Sen. Pete Domenici (R., N.M.) endorsed a payroll tax holiday last month.