Payroll Tax Cut Center of DC Squabble

House Rejects Rare Senate Compromise

Benjamin Franklin once said that nothing was certain except for death and taxes. And while the politicians in Washington bicker and feud, it seems more taxes are certain starting Jan. 1.

After a rare compromise had been reached in the Senate, all eyes turned on the House of Representatives to pass a two-month extension of the payroll tax break on Tuesday. But it was voted down instead, giving workers a likely tax hike for a New Year’s gift.

The center of the storm is the payroll tax break originally part of the stimulus passed in early 2009. Policymakers sought a payroll instead of an income tax break because the slightly larger paychecks were likely to be spent into the economy. Now, Republicans and Democrats are squabbling whether to keep the rate at 4.2% (originally at 6.2%) for the first $110,000 in pay.

While the in-fighting may have been expected, what was unexpected was how anti-tax Republicans took the lead in shelving the tax break. The Senate passed a temporary payroll tax break with an unemployment insurance extension aimed at getting through the New Year. The House, however, effectively shot it down, stating that a year-long plan was the only way to go.

With Senators already back to their home states during the Senate’s holiday recess, House leaders want them to come back to DC again, restarting the process to negotiate a long-term package. Whether the Senate’s or House’s leadership blinks first remains to be seen. If both sides don’t, payroll taxes on families are expected to increase by more than $1,000 over 2012.

While the politicians who write the tax laws bicker, make sure to hire someone who knows the laws if you owe back tax debt to the IRS. Hiring a tax attorney puts you in the best position to negotiate and settle with the IRS.

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