While taxpayers are impatiently waiting to hear if Congress will allow the Bush-era tax cuts expire in January, this week two groups introduced plans to cut federal expenditures and shrink the $13.7 trillion national debt with tax and policy changes. The authors' methods run the gamit, but are sure to affect everyone's pockets should they be enacted.
The first recommendation came Nov. 10 from the co-chairs of the White House's National Commission on Fiscal Responsibility and Reform, or the fiscal commission. It has been called the Bowles-Simpson draft proposal after the authors, Erskin Bowles, president of the University of North Carolina system and former White House chief of staff under Bill Clinton, and Alan Simpson, former Republican senator of Wyoming.
That 24-page document and corresponding 50 slide presentation differs greatly from the 140-page proposal from yesterday's Bipartisan Policy Center's debt reduction task force. That recommendation has been called the debt reduction or Domenici-Rivlin plan, after former Republican Sen. Pete Domenici of New Mexico and Alice Rivlin, former vice chair of the Federal Reserve and also on the board of the fiscal commission.
A Year-Long Payroll Tax Holiday
One of the most dramatic proposals may have been yesterday's debt reduction plan's "payroll tax holiday" that suspends Social Security payroll taxes for all of 2011. This move aims to keep money in employee paychecks and incentivize companies to hire more people.
While dramatic, the task force said the payroll holiday will immediately spur economic growth.
"Our first priority is to generate a healthy economy," said former Michigan Gov. Jim Blanchard, a member of the task force. "That's why we suggested a payroll tax holiday right away. We phase in a lot of the rest of our plans so we don't interfere with an economic recovery." Many economists agree that an immediate payroll holiday would provide taxpayers greater incentive to purchase more.
"Anytime you're doing a payroll tax holiday, you're giving money to consumers faster," said Kacy Gott, chief planning officer for wealth management firm Aspiriant. "So if you're looking for stimulus quickly, that would have an effect. Whether or not it makes sense to do that is another issue. It's certainly an efficient and very quick method."
The task force claimed the payroll tax holiday, which will affect about 125 million workers, will spur growth through a tax cut of $650 billion.
"A temporary payroll tax cut is, in spirit, a good one," said Nada Eissa, Georgetown University economics and public policy professor, who pointed to the benefit of giving tax relief to lower income brackets. "Higher-income brackets tend to escape the payroll tax. This is a good way to provide relief and incentives so people are encouraged to go out and work more for a boost to the economy."
The Bowles-Simpson draft proposal from Erskin Bowles, president of the University of North Carolina system and former White House chief of staff under Bill Clinton, and Alan Simpson, former Republican senator of Wyoming, aims to increase the retirement age to qualify for Social Security to 69 by 2075.
The debt reduction plan did not raise the Social Security retirement age and instead called for raising the cap on Social Security payroll taxes (currently at $106,800) over the next 38 years such that 90 percent of all wages are covered, the target in 1983.