While everyone not named Warren Buffet thinks they pay too much in taxes, there are few bipartisan agreements on exactly how we can reduce taxes for both employers and employees. Occasionally, however, an idea can unite both sides of the aisle. One such case is the payroll tax holiday. I have joined with Rep. Walt Minnick, an Idaho Democrat, to introduce the RELIEF Act, which will give small business owners with fewer than 50 employees—and their employees—a 100-percent suspension of the payroll tax for six months.
The payroll tax holiday benefits those employees who need it most. While all workers pay the same tax, the payroll tax is capped at higher income levels; as such, the percentage taken from a lower-wage worker is a bigger portion of their paycheck. Small business owners support the RELIEF Act because it increases cash flow, helping them meet payroll, pay for benefits, invest in their companies and hire new employees.
The U.S. Census Bureau reports that there are nearly five million companies in this country with 50 or fewer employees. Estimates put the economic benefits of a holiday on payroll taxes at about $120 per week for each of the 33 million American workers who are employees of small businesses. Nearly three-quarters of American households pay more in payroll taxes than income taxes, and small business owners are stuck paying this tax, regardless of the profitability of their business. Moreover, the RELIEF Act is an administratively simple way for the federal government to put money directly into the hands of people who will put it into the economy.
One of my most important jobs as a member of Congress is protecting and ensuring that the Medicare and Social Security trust funds remain solvent. The RELIEF Act will have no impact on these trust funds, as it authorizes funds to be transferred from the Treasury to these accounts to ensure they are held harmless. Furthermore, repealing just a small part of the superfluous spending contained in the stimulus bill would pay for the entire RELIEF Act.
In sharp contrast to the so-called stimulus package, the RELIEF Act will allow small businesses to keep employees on the payroll, hire new employees and make capital investments. In fact, it requires business owners who take the tax benefit to make such investments with the proceeds of the tax credit. Instead of attempting to borrow and spend our way out of our current challenges, suspending the payroll tax will have a positive impact on individuals throughout the economic spectrum.
A recent study by professors at Stanford and Rutgers estimated that suspending only 40 percent of the payroll tax could create between two and four million jobs—the RELIEF Act suspends this tax 100 percent.
The bottom line is that passing a payroll tax holiday is the most effective thing Congress can do to help hard-working small business owners and their employees survive the current economic climate. It will give them the opportunity to reinvest in their businesses and help this economy get back on track towards growth and prosperity. iBi