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A Permanent Payroll Tax Cut?

Yuval Rosenberg

With the Trump administration reportedly considering a temporary payroll tax cut to boost the economy and ward off a potential recession, Marc Goldwein of the Committee for a Responsible Federal Budget is floating an alternative plan that he says would help the economy over the short- and long-term and also increase progressivity, strengthening Social Security and raise wages for many Americans.

In an op-ed at The Hill, Goldwein suggests permanently reducing the current payroll tax for workers and employers — each side pays 6.2% of wages up to roughly $133,000 a year — by 1 percentage point. But to avoid undermining Social Security’s finances, that cut would be gradually paired with a new 5.2% tax on all compensation, including benefits.

“Cutting workers’ tax rate will boost economic activity by increasing consumer spending, while cutting employers’ rate will support the economy by helping businesses to keep prices low and retain or hire workers. Making the rate cut permanent will assure these economic gains are sustained over time,” Goldwein says. He adds: “This reform would be far more progressive and more efficient than the current payroll tax. It would encourage employers to control health care costs and boost middle class wages rather than dedicating a growing share of compensation toward fringe benefits and pay for companies’ highest earners.”

Goldwein acknowledges that some questions would still need to be answered — perhaps most notably, whether our politicians have the creativity and will necessary to make such changes.

Read the full op-ed at The Hill.

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