U.S. Senator Pete Domenici, R-N.M., has introduced legislation that would exempt employees and employers from the federal payroll tax for one month, calling it a way to jumpstart the economy by getting more spending money into the hands of low- and middle-income Americans.
Domenici said such a tax "holiday" would result in more take-home pay for workers and give employers a break from paying the tax on their employees. It would be for workers who earn less than $80,400. According to the senator, it would infuse nearly $40 billion into the economy quickly.
Domenici's plan would suspend for one month the Social Security (OASDI) payroll tax now paid by both the employee and employer - 6.2 percent each. Self-employed Social Security payroll taxes, now at 12.4 percent, would also be suspended.
The senator also noted that a holiday would benefit state and local governments, to the extent that they too would pay no payroll taxes.
Social Security benefits would be unaffected by the Domenici legislation, which is cosponsored by Sens. Christopher "Kit" Bond, R-Mo., and Bill Frist, R-Tenn.
"A payroll tax holiday is truly a stimulative, temporary tax cut that is very likely to be spent. Employees would have more take home pay and employers would have increased cash flow," Domenici said.
"This is a quick, easy and simple way of getting more money flowing into the economy. A payroll tax holiday in December would be perfectly timed for the holiday shopping season. There would be no delays for cutting rebate checks or any interference with the IRS' ability to process 2001 tax returns," he said.
Domenici said that under the plan, a school teacher making $40,000 would see a $207 increase in her take-home pay in December. A self-employed contractor earning $40,000 per year, who pays both the employer and employee share of 12.4 percent, would see a $413 increase in pay.
In addressing the Senate today, Domenici entered into the Congressional Record the text of a Wall Street Journal article that contained a positive assessment of the plan by President Bush's leading economic adviser, Lawrence Lindsey.
The Wall Street Journal article qouted Lindsey as calling the plan "a great way of putting money into people's pocket" and "an approach that has merit, a lot more merit than a lot of what is being proposed by our friends on the other side of the aisle."
Domenici called on the stalemated House and Senate leadership to embrace his plan as they work over the Thanksgiving Day holiday to craft an economic stimulus compromise that can realistically be approved by Congress and signed by the President.
"The administration and Congress have promised to enact a stimulus package. The American people expect a stimulus package. We must rise above the impasse here in the Senate. Let's all admit that neither the Democratic plan nor the President's plan has the requisite 60 votes to pass the Senate," Domenici said. "My payroll tax holiday plan is ideal. It could be coupled with other components to help the unemployed to give the nation an effective stimulus plan."
