Without congressional action, a payroll tax cut that has put nearly $1,000 in the pockets of the average Pennsylvania family this year will expire at the end of December. That would be tough on workers, whose budgets are already strained, and bad for the economy, which is still struggling to recover from the Great Recession. Congress should pass legislation I've introduced to prevent a tax-hike on working families.
If the current 2 percent payroll tax cut is allowed to expire, employees' share of the Social Security payroll tax will return to 6.2 percent of earnings, up from 4.2 percent today.
This hit to take-home pay would hurt families who already face declining wages and have to work longer and harder to pay for housing, make the car payment or buy food for their kids.
Allowing the tax cut to lapse would also undermine the recovery by reducing consumer spending. Independent analysts estimate that letting the employee payroll tax cut expire would reduce economic growth by up to two-thirds of a percent in 2012. With almost 14 million Americans out of work, including more than half a million Pennsylvanians, we cannot afford this slowing in economic growth.
I have introduced legislation that would extend and expand the employee payroll tax cut. The payroll tax for employees would be cut in half in 2012 - from 6.2 to 3.1 percent.
For the average family, this would mean an almost $1,500 increase in take-home pay next year. Approximately 160 million workers would benefit from the tax cut, including 6.7 million workers in Pennsylvania.
I'm working with Democrats and Republicans to get this done. Ensuring that middle-class families do not face a tax increase is something we should be able to work together on - across the aisle.
The legislation I've introduced also includes payroll tax cuts for small businesses to help them create jobs and grow. It builds on legislation that I introduced earlier this year - the Small Business Job Creation Tax Credit Act - to encourage businesses to add jobs and reverse cuts in salaries and worker hours.
According to the non-partisan Congressional Budget Office, an employer tax credit is one of the most effective ways to spur hiring and spark growth. This fall, CBO reported that every dollar in reduced taxes on employers would generate up to $1.20 in economic activity.
My legislation cuts payroll taxes in half for 98 percent of U.S. businesses. These businesses have taxable payrolls of $5 million or less and will see their Social Security payroll taxes cut in half.
The other two percent of businesses that have taxable payrolls exceeding $5 million will enjoy the payroll tax cut - from 6.2 to 3.1 percent - on their first $5 million of payroll. By targeting the cut to the first $5 million of payroll, we're targeting those small businesses that have been especially hard hit during and after the Great Recession.
The legislation also provides new incentives to hire by eliminating the employer share of the Social Security payroll tax on the first $50 million in increased payroll in 2012. Firms can benefit by hiring more workers, increasing hours, or boosting pay. Businesses get the flexibility to choose the course that best aligns with their needs.
Instead of paying 6.2 percent, businesses would pay zero percent on the increased payroll.
Finally, the legislation is fully paid for and won't add one cent to the deficit.
This week, we have an opportunity to provide a tax cut for middle-class families and new incentives to help small and large businesses hire. Washington can't turn its back on working families or businesses trying to expand.
We should seize the moment.