Over the past few weeks there has been a plethora of media attention about the proposed tax cuts. It all started with an announcement of a grand bipartisan split between the Presidential Administration and Republican congressional leaders. The plan looked to extend the Bush era capital gains tax rates, reduce the climbing estate taxes set to rise on January 1, and otherwise grant tax cuts to many Americans.
After the announcement of this proposed bill, political debate soon kicked in. Pundits called the president weak. Democrats declared that the Republicans were just trying to save the tax cuts for affluent populations. The bill cleared a hurdle in the Senate, and is left sitting on promises that it will be passed in early 2011.
One of the features of this proposed bill is the temporary lowering of Social Security Taxes. As it stands right now, the current withholding rate for Social Security is 6.2 percent for the employer and 6.2 percent towards the employee. This tax break puts an extra 2 percent in every employee's pocket on the first $106,800 of their earnings.
Many working Americans would feel that this is a small moral victory; any time they can get away with paying less taxes is a step in the right direction. However; what is the benefit derived from the ultimate cost? If an employee makes $40,000 a year, they will see a tax decrease bonus of $800; or $66 a month. Employees making $20,000 a year would see an extra $33 a month. Over the next two years, this tax cut will build up to approximately $120 billion.
We are warned that Social Security is on the brink. It is a common belief among a younger generation Social Security will not be there in the fashion it is today when they retire in the future.
I have been teaching a payroll class over the past quarter and we have been learning about all the different payroll taxes and different withholdings that need to be factored in to an employee's wages before they reach the employee's bank account. We are not experts by any means, but we are well-educated in payroll deductions and payroll taxes. When the opportunity presented itself in order to discuss this in the classroom, the student spoke out. These students take an online payroll accounting class from Rasmussen College, students who live across America.
First things first…Students are fans of tax cuts, as long as they are done responsibly.
Kimberly Marsolek, an accounting student at Rasmussen College from Minnesota stated: “As we stand now, our nation is facing the possibility of a shortfall in social security benefits; endangering an already compromised system seems foolish to me. We all hope to pay lower taxes or have fewer tax increases, but jeopardizing our future social security benefits doesn’t seem like the right answer.”
Tia Ohotto, another Minnesota-based student asserted, “I know as an individual, most would rather worry about lower taxes. I think that the two go hand in hand though, when the country is in debt that has to be paid for somehow, I do not see lowering taxes as always a good thing. If the debt was eliminated I am sure our taxes would eventually go down lower than they ever would now.”
Students quickly began to examine the size of the benefits to our taxpayers, the cost to the government, and if it would have the intended stimulating effect.
Kimberly Marsolek added, “I do not think the proposed raise of two percent would make that much of a difference to the average worker. If a worker earns $40,000 and can save about $800 a year that is all well and good, but that is not enough savings to put a dent in any amount of personal expenses, or to increase one’s quality of life.”
Another online accounting student, Amanda Boston, believed that generally that two percent would be nicer to have in our pockets, instead of deepening the government’s pockets. However; when you put the issue of responsibility on the table, she would rather have U.S. politicians address the issues with the Social Security System.
Perhaps student, Nickie Labita ended the conversation best as she posits, “I think that paying off the national debt is very important. In doing this, we are figuring out the debt will be reduced or paid off for future generations. Is there a solution to doing that and reducing the taxes as well?”
All thoughts considered… What are your thoughts on the implications of this proposed bill and Social Security?