SmallBizResource Blog -- Economy

Ax The Payroll Tax, Temporarily

Posted by Gayle Kesten Monday, Dec 15, 2008, 09:57 AM ET

The economic stimulus plan should include a six-month payroll tax break for small businesses, whose sales are at an all-time low, says the National Federation of Independent Business (NFIB).

In a letter to Congress (PDF), Dan Danner, NFIB's executive VP, wrote: "No other stimulus plan will be as immediate and effective as the payroll tax holiday. A tax holiday serves the desired purpose of increasing economic activity and helping workers and businesses cope with challenging economic times. Currently, the payroll tax removes from the economy about seven percent of disposable income, and is the primary tax paid by 60% of American households."

A two-quarter reprieve on the 6.2 percent payroll tax would be a "double benefit to the economy," Danner argued, "by helping struggling businesses reduce costs and providing working Americans with extra money to spend where they see fit."

What's more, the payroll tax holiday could also keep more people employed: "Eliminating the tax on hiring and retaining workers can reduce unemployment and keep people working during a period of slowed economic growth. A reduction in the cost of labor has the added benefit of putting money back into the business to cover the cost of labor and other business expenses," Danner said.

In terms of dollars and cents, SoCal-based Press-Enterprise has kindly done the math for us -- a person making $30,000 a year would see a $36.80 per week paycheck boost. In all, NFIB's plan would cost around $312 billion.

A similar relief plan, proposed by Rep. Louis Gohmert (R-Texas), is designed to keep federal income taxes in workers' paychecks this January and February; his original idea was for a full 12 months. "My plan would cost less than the remainder of the bailout, but it would provide significantly more relief to taxpayers as well as a greater economic boost," said Gohmert, whose bill (HR 7309) would cost $334.4 billion.

At least one economist agrees with NFIB's and Gohmert's proposals. Mark Zandi, chief economist at Moody’s Economy.com, who was among 11 economists asked how they would spend every last cent of the money allocated to the stimulus package, answered: "A payroll tax holiday and a permanent payroll tax credit would be effective tax cuts, particularly if designed to help harder-pressed lower- and middle-income households and smaller businesses."

What do you think? Good idea? Band-aid? Take what you can get?

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