Friday, December 05, 2008

Proposed Two Month Tax Holiday

On WOWO and also on Leo’s Blog there was/is discussion on a plan to create a two money tax holiday. This tax holiday would be composed of both Federal Income and Payroll taxes. For two months workers would have none of these taxes withheld from their paychecks. The thought is this would stimulate the economy. The question is, is this a good or bad idea?

The basic facts are:

  • Less than 40% of all workers pay any federal income tax.
    • Though many workers have federal income tax withheld, many get 100% of what was withheld back come April 15 at tax filing time.
  • 100% of all wage earners have payroll taxes withheld up to $102,000
      • 1.45% for Medicare
      • 0.9% for Social Security Disability
      • 5.3% for Social Security Old Age Survivors Insurance

Total Payroll tax is 7.65% for each employee and employer

WOWO's Pat White stated if this were to be implemented, then the taxpayer (you and I) would finally see how much tax was being withheld and this would cause a tax revolt.

What would such a holiday do for the economy? The Federal Income tax would have little affect on middle income workers. The amount they pay is small if any. However, the payroll tax would have a huge affect. This would amount to a 7.65% increase in take home pay. Considering the savings rate of the US is near zero, this would be a tremendous boost in discretionary income. Many families struggle to pay for health care, college, save for retirement and save to buy a home.

The problem is this would dramatically increase the deficit this year if Federal Income taxes were abated for two months. It would also increase the Unified Budget Deficit as well.

Pat White believes two months of a payroll holiday would not be bad, but extending the holiday on payroll taxes indefinitely is bad. The reason is seniors and soon to be boomer seniors would not stand for this, they want their entitlements. What became clear is that Pat White has the misconception that both Seniors and Boomers out number all other potential voters in theUntied States. He disagreed that the children of the boomers out number those over 46 by 20%. What are the actual numbers?

18-46 121,062,403
47-61 61,411,573
>62 46,195,866

>46 121,062,403 13%
<47 107,607,439

This two month tax holiday is not much different from what I have been proposing for decades. The only difference is that I would repeal the broken Social Security program pertaining to SS-OASI and allow the worker to keep both portions of the payroll tax for a total of 10.6%. We would use the SS-OASI trust fund to pay a means tested benefit to those found to be in need based on assets, not income.

What would my plan do?
  • It would finally recognize what we all know, Social Security cannot pay future benefits in full.
  • Social Security OASI is a bad deal for all workers today.
  • It would stimulate the economy by making families self sufficient and less dependent on government (we the taxpayers, US).
  • It would provide the needed capital for college, health care, retirement, buying a home and more. It would restore the American dream where in a land of opportunity, a person can work hard and prosper.


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