Here’s an amendment that might convince a few unhappy liberals in the House to sign on to the Obama-Republican tax deal, which will be voted on in the Senate on Monday. Why not eliminate the payroll tax cut for filers earning over $250,000 a year?
The two percent payroll tax cut that was included in the $984 billion plan applies to everyone no matter what their income. For instance, James Dimon, chief executive officer of JP Morgan Chase Co., earned $1 million in salary as part of his $24.1 million compensation package in 2009 (the last year available from Securities and Exchange Commission filings).
Dimon will get the same $2,136 tax break as every other filer because the payroll tax cut applies to the first $106,800 of income. That extra tax break comes on top of the extension of the Bush tax cuts, which will be of far greater value to someone in his tax bracket.
If the payroll tax cut was eliminated for high-end filers, a significant amount of money could be lopped off the total cost of the package. According to the Tax Policy Center, about 6 million of the nation’s 124 million taxpaying households will earn over $200,000 in 2011 (its tax tables only have a catch-all category for those earning between $200,000 and $500,000 a year). By conservatively assuming about 4 million of those households will earn over $250,000, cutting their extra tax break for those above that level would reduce the cost of the total package by about $17 billion over the next two years.
Another alternative would be to use that $17 billion to provide new tax breaks for those earning under $20,000 a year, who will be paying slightly more in taxes over the next two years under the Senate plan. The value of their expiring “Make Work Pay” tax credit, which was part of the 2009 stimulus plan, was larger than the payroll tax break for those low-wage workers.
“If the logic is to stimulate the economy, then it makes sense to focus more of the tax break on these low-income folks because they are more likely to spend it and give you more bang for the buck,” said Roberton Williams, a senior fellow at the Tax Policy Center.
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