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Caught between a rock and who knows what!

Are you as confused as I am? I’m honestly not sure if I’m for or against the idea Congress is kicking around – the idea of continuing the temporary reduction in payroll taxes that expires at the end of the year.

Oh, it seems like a no brainer that the continuation is desirable, thus avoiding a tax increase in bad times. More money in consumer pockets -- well, most pockets anyway – is good for the economy. Consumer spending is considered the key to keeping us from falling into a second recession. But, it’s the way this thing may come down that’s got me scratching my head.

You’ll recall last year, Congress reduced the employee-paid Social Security tax rate from the normal 6.2 to 4.2 percent to put more money in consumers’ wallets and boost the economy. However, that rate will go back up to 6.2 percent in January unless Congress passes some form of continuation. And, keep in mind we’re talking about Congress here, a body capable of anything except finding a reasonable, non-political solution.

For example, Democrats are pushing for a vote on a proposal to actually increase the size of that tax break for workers by another 1 percent (3 percent total). That’s very attractive – it would be good for all our employees. Even better, they also want to include small businesses in the tax cut for the first time. Employers would pay 3.1 percent (a 50 percent reduction) on the first $5 million of their payroll. Now that’s really desirable as most boat dealers don’t have $5 million-plus payrolls these days. It could mean a sizable tax benefit for dealers, marina operators and many other segments of our industry.

But, this question keeps swirling in my head: Shouldn’t we find a way to pay for this? After all, we’re already up to our gunwales in debt, yesterday we put our money printing presses in overdrive to buy time for Europe to deal with its insolvency, and our economy is still treading water to say the least?

The Dems want to fund the tax cut by imposing a 3.25 percent tax surcharge on earnings exceeding $1 million per year. (A person making $1.1 million a year would pay the additional 3.25 percent on $100,000 in earnings.) But the GOP has labeled the proposal a “job-killing tax hike on small businesses” because most small business income is reported on individual rather than corporate tax returns. So, that’s not good because it’s successful small businesses that are the likely ones to create badly needed jobs in the future. Taxing them, or their owners, doesn’t encourage job investment and creation.

But wait: according to the non-partisan Tax Policy Center – a joint project by the Brookings Institute and the Urban Institute -- only 1 percent of those reporting business income via individual returns in 2011 would be subject to the proposed surcharge. So its impact would be quite limited. So, that makes it more attractive again.

See how confusing it is to decide what to tell my Congressman and Senator (No.No. I can’t tell them that!). I think continuing the tax holiday is very important, but I don’t like the payment proposal. Still, I think it should be paid for. And, since allowing taxes to increase in these economic times is likely political suicide, we can expect some action on all this soon.

Clearly, Congress should decide the nation’s economic problems are a higher priority than electoral considerations (hey, miracles can happen.) Of course, we shouldn’t get our expectations too high. They’ll probably pass something without paying for it and appoint a super committee to deal with it – and we all know how well that works for us!


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