Federal Employees' Pay Freeze Could Be Extended to Cover Payroll Tax Cut

By on November 30, 2011 in Current Events, Pay & Benefits with 210 Comments

Updated 11/30/2011 7:15 PM CST

The Senate is currently debating a possible payroll tax cut extension, and the plans between the two major political parties differ significantly as to how to both extend and pay for the tax cut.

The payroll tax holiday, set to expire on December 31, reduced workers’ Social Security payroll tax rates to 4.2% on the first $106,800 in wages this year, instead of the normal 6.2%. That amounts to an additional $1,000 this year for somebody making $50,000; an individual making more than $106,800 would take home $2,136 more.

Senator Dean Heller (R-NV) introduced legislation today (11/30) that would extend the current 4.2% rate for one year.

Democrats on the other hand want to cut the tax even further to 3.1%. To put that rate into perspective, individuals making $50,000 would save $1,550 and those making more than $110,100 (the new wage cap for next year) would take home an additional $3,413.

Both parties differ in how they would pay for the extended tax cut as well. The one year extension proposed by Republicans is estimated to cost roughly $120 billion, while the additional cuts proposed by Democrats is estimated at around $265 billion.

Democrats have proposed imposing a surtax on millionaires to fund the expanded payroll cuts.

The Republican plan, which also touts that it would reduce the federal deficit by $111 billion while simultaneously extending the payroll tax cut, would:

  • Eliminate millionaires’ and billionaires’ eligibility for unemployment compensation and food stamps.
  • Require millionaires and billionaires to pay higher Medicare premiums.
  • Extend the current pay freezeon federal employees for 3 years
  • Reduce the size of the federal civilian workforce by 10% through attrition
  • Includes the Buffet Rule Act to allow wealthy taxpayers who feel they are under-taxed to send more money to the U.S. Treasury

Speaking on the proposed legislation, Heller said, “Republicans, Democrats, and Independents all agree Congress should extend the temporary payroll tax relief. But Congress should choose to extend the payroll credit without raising taxes on employers and harming job creation. Taking away the capital that employers could use to invest and grow their businesses makes little sense. My proposal is a practical solution that borrows a cost-cutting idea from the bipartisan Simpson-Bowles commission and can pass Congress and be signed into law.”

Rep. Chris Van Hollen (D-MD), whose district is home to many federal workers, called the Republican proposal “another cynical ploy to single out federal employees. The economic collapse was not caused by the men and women who serve the federal government, and they should not be forced to shoulder the entire burden of the cost of recovery.”

Senate Majority Leader Harry Reid (D-NV) issued a statement saying the Republican proposal cannot pass the Senate in its current form.

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About the Author

Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce. Ian also has a background in web development and does the technical work for the FedSmith.com web site and its sibling sites.

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