Congressional leaders are using some of our own money to give us a Christmas present. But we can only use it for two months.
The Senate yesterday approved a compromise version of HR 3630 to extend 2011's 2 percentage-point reduction in the employee share of FICA tax and the self-employment tax for two months into next year. They presumably expect to continue the tax for the rest of 2012 when they return from their break. But what happens if they don't?
These taxes only apply to the first $110,100 of wages or self-employment income earned during a calendar year. If Congress fails to extend the holiday for the full year -- and Congressional failure is always an option -- how does the tax holiday affect the rest of the year? It's not pretty.
For self-employment tax, the 2% rate reduction will only apply to $18,350 of self-employment income, absent additional Congressional action. That's 2/12 of the 2012 FICA base of $110,100.
For the employee tax on wages, the break only applies to the first $18,350 of wages, and only to wages paid through February 2012.
The bill does not extend 100% bonus depreciation or the $500,000 Section 179 limit past 2011.
UPDATE, 12/19: House Speaker Boehner says it's not happening. The Wall Street Journal reports:
Mr. Boehner said Sunday on NBC's "Meet the Press" that a two-month extension was a sign of congressional dysfunction. "How can you do tax policy for two months?" Mr. Boehner said. "We really do believe it's time for the Senate to work with the House to complete our business for the year. We've got two weeks to get this done."
Congressional dysfunction? Why stop now?
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