Obama's Gift to the Rich: A Permanent Payroll Tax Holiday
49 Pages Posted: 4 Aug 2013 Last revised: 28 May 2014
Date Written: August 4, 2013
Abstract
President Obama made a concerted effort to enact tax legislation that benefited middle and lower income individuals over the rich. The temporary payroll tax cut in effect during 2011 and 2012 is a case in point. However, many high-income individuals enjoyed an even greater measure of payroll tax relief as a result of legislation that he signed. But instead of being granted directly under the terms of a bill, this relief was made possible because the tax legislation that he signed perpetuated what had been only a temporary incentive for individuals to avoid the payroll tax entirely when they work for a corporation that they also own or otherwise control. Simply put, these individuals can take a payroll tax holiday by substituting a dividend for any wages they could otherwise receive. What’s more, this tax dodge operates in a way that favors the rich far more than anyone else. This tax dodge would have died after Mr. Obama’s second year in office. However, the legislation he signed gave it perpetual life, reinforcing the need to address the multiple defects in the nation’s employment tax system.
Keywords: payroll tax, social security tax, FICA, self-employment tax, SECA, employment tax
JEL Classification: H22, H26, H29
Suggested Citation: Suggested Citation