[Congressional Record Volume 157, Number 185 (Monday, December 5, 2011)]
[Senate]
[Pages S8164-S8166]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          PAYROLL TAX HOLIDAY

  Mr. KYL. Mr. President, the reason I wish to speak is because there 
is a lot

[[Page S8165]]

of confusion around something called the payroll tax holiday. It is 
legislation that is likely to be acted upon by the Congress and perhaps 
a bill will be sent to the President before the end of this year. It is 
something the President is pushing very strongly to try to achieve. 
There are a lot of different versions of it and a lot of confusing 
ideas about what people support and what they do not. I wish to talk a 
little bit about that.
  First of all, what is it? The payroll tax is the tax that funds 
Social Security. It is a tax that is paid on the employee's wages. Half 
of that is paid by the employee, half of it is paid by the employer. 
From the employee's standpoint, the more they pay in, the more they get 
out when they retire; the less they pay in, the less they get out. That 
is what funds Social Security.
  There is a question: Why would someone not support a reduction in the 
payroll tax--or as it is called right now a temporary payroll tax 
holiday because what is being proposed is that a portion of that tax 
would not be paid. It represents one-third the amount of the tax an 
employee would ordinarily be paying that is not being paid today. The 
President would actually like to cut that to the point that an employee 
would only pay half the payroll tax liability. I understand he is going 
to revise his proposal and not ask there be any relief on the 
employer's side. What the President, therefore, is asking is that half 
of what an employee pays--or 3.1 percent of payroll--not be paid for 1 
more year.
  The first reason one should think carefully about extending this 
holiday is that, as I said, this is what funds Social Security. For an 
employee, the less they pay in, the less they are going to get out. If 
you are OK with that, then think about the program writ large. Social 
Security is in big financial trouble. We all know that. As a result, 
the less we put into it, then the less money there is to pay benefits 
for people who are on retirement.
  What is happening with this particular shortfall is that we are 
paying for it out of general revenues. What is happening is, since we 
borrow 40 cents out of every $1 we spend in this country, we are going 
to go someplace, such as to the Chinese, for example, and we are going 
to borrow the money. Out of $1 that we want to spend, we are going to 
borrow 40 cents of that, and then we are going to put that money into 
the Social Security trust fund that is immediately going to be paid to 
somebody who is on Social Security.
  What is the problem with that? Severalfold. First of all, as we said, 
the amount of money we put through the payroll tax into Social Security 
is what we are going to get back. If we put less in, we are going to 
get less back.
  Second, because Social Security is already broke, that means the 
United States has to borrow the money to put back into Social Security 
in order to keep it going. When we do that, then there is less money in 
general revenues to pay for other things. So, yes, our general tax 
revenues and borrowing can make up for that difference in the payroll 
tax that is not being paid in now, but that means there is that amount 
of money less available for education benefits or agriculture or the 
Defense Department or whatever else we might be wanting to spend the 
money on. The fact is, if we are going to spend the same amount of 
money as the Federal Government and now we are increasing the amount we 
have to spend on Social Security, there is less to spend elsewhere.
  I find it ironic that our Democratic friends in particular would 
think this is a good idea. I ran across something from the AARP, back 
in 2010. I wish to quote from it. This is a press release dated just 
about exactly 1 year ago, December 7, 2010, by Thomas Bethell. The 
subject is ``What the Payroll Tax Cut Means for Social Security.'' He 
quotes Nancy Altman, who is codirector for Social Security Works, 
which, as he said, describes ``a worst-case scenario.''

       She thinks the cut could well become permanent.
       If that happens, Social Security's long-term shortfall 
     could double over 75 years, she says, and political pressure 
     to downsize the program could mount. That could lead to 
     converting Social Security from a universal insurance program 
     to a welfare program, with the numerous drawbacks of programs 
     for the poor, including low public support.
       If this scenario unfolds, says Altman, ``it's good-bye, 
     Social Security.''

  His conclusion is ``there is little doubt that reducing the payroll 
tax carries a risk.''
  That is the first reason I think one should be very careful about 
deciding that since tax cuts are usually appreciated by people, 
therefore, this is one we should extend, even though it is just 
temporary.
  That brings up the second point. It can be argued this is very bad 
economic policy. There is no evidence this temporary tax cut has 
actually produced any new jobs, which is the whole idea. In fact, our 
economy has decelerated. In 2010, we had a 2.8-percent GDP growth. We 
are now down to just over 1 percent. Unemployment remains stubbornly 
high. In fact, I thought I would quote from a commentary of Ed 
Gillespie on ``FOX News Sunday.'' Yesterday, he was asked a question by 
Chris Wallace about the payroll tax.

       First of all, 50,000 of those jobs--

  Meaning the jobs that have been created now in the economy over the 
last month--

       50,000 of those jobs are retail jobs that likely could be 
     temporary for the holiday season. On top of that, for every 
     two people who found a new job, five people left the 
     workforce entirely, which is part of a continuing pattern.
       In fact, if the labor force today were the same size it was 
     when President Obama took office, the unemployment rate would 
     be 11 percent. So, shrinking the labor force is not the right 
     way to bring down the unemployment rate. . . .

  The point is, a lot of people have stopped looking for jobs. That is 
one reason why the unemployment rate actually went down. There are 
plenty of economists who will tell us reducing the payroll tax is not a 
good way to create jobs. I am going to quote from three or four.

       As taxes go, the payroll tax is a big revenue raiser and 
     one of the least damaging to work incentives. So cutting it 
     is a poor choice if jobs are the objective.

  Arthur Laffer, economist, in the National Review, the last day of 
October this year.
  Troy Davig, an economist with Barclays Capital, Reuters:

       Hiring is a long-term contract and this is a short-term 
     stimulus.

  Meaning the temporary payroll tax holiday.
  Neil Dutta, an economist with Bank of America Merrill Lynch, says:

       Nothing that's likely to get done--with regard to the 
     payroll tax--is going to have a meaningful impact in terms of 
     lowering the unemployment rate and creating jobs.

  Bruce Bartlett, in the New York Times, is quoted in August of this 
year:

       There is no evidence that the lower payroll tax has done 
     much of anything to stimulate either spending or hiring.

  In the New York Post, by Andrew Biggs, some time ago now:

       The payroll-tax holiday is a dubious 
     idea. . . .

  Finally, Charles Blahous, who is a real expert on Social Security and 
an economic research fellow at Stanford's Hoover Institution, says:

       Taking real tax revenue away from Social Security and 
     issuing debt in its place--the policy now in effect--is the 
     worst of all worlds, both for the program and for the budget.

  It does not stimulate the economy, doesn't produce jobs, and it 
creates a budgetary problem for Social Security itself.
  I also believe, the third point is, it can be bad tax policy. I note 
from a Wall Street Journal editorial, dated December 2--here is the 
beginning of it:

       So here's the latest Democratic job growth plan: Pay for a 
     temporary tax cut that has already proven not to create jobs 
     with a permanent tax increase that almost certainly will cost 
     jobs.
       That's the essence of Senate Majority Leader Harry Reid's 
     plan to finance a one-year payroll tax cut with a 3.25 
     percent tax surcharge on upper-income Americans that would 
     last for at least 10 years. I understand now they are 
     thinking about revising that for this exact reason, but 
     that is the point. The surtax is, in reality, a new tax 
     that primarily hits small business owners. They are the 
     ones who create the jobs. Almost all of the new net jobs 
     created since the 1980s are in small businesses. They 
     create about 70 percent of the new jobs, most of them 
     coming out of the recessionary time we are in.

  And what does Treasury say about the people who would be hit by this 
surtax? Treasury estimates 392,000 returns have an income over $1 
million,

[[Page S8166]]

and of that 311,000 are classified as business owners. So about 80 
percent of the people who would get hit by this surtax are the very job 
creators we are hoping will invest their money into their businesses to 
help the economy and to create new jobs. How do you create new jobs by 
taking more earnings away from the very employers who are creating the 
jobs? So, third, it is bad tax policy.
  Fourth, Democrats argue: Well, the wealthy are not paying their fair 
share, and this too is something that doesn't stand up to scrutiny. 
These are from the Internal Revenue Service. These are their tables. 
The top earners pay the bulk of the taxes in this country. In fact, we 
have the most progressive income tax system of all of the 
industrialized countries--all of the countries in the OECD. The top 1 
percent in our country earns 20 percent of all the income--that is 
pretty good--but they pay 38 percent of all of the income taxes. The 
top 2 percent earns about 28 percent of the total income. They pay over 
48 percent--almost 50 percent. They pay almost half of all of the 
income taxes that are paid by the top 2 percent.
  Some people say: Well, what about the payroll tax? That is exactly 
what we are cutting here. Remember? That is what they are getting a tax 
holiday from paying. So you have the top 2 percent of the people paying 
50 percent of the taxes.
  What do the bottom half pay? It turns out the Joint Committee on 
Taxation estimates that 51 percent of all households had either zero or 
negative income liability for the tax year 2009. So you have 2 percent 
of the people paying 50 percent and the bottom 50 percent paying none. 
In fact, the top 5 percent pays a whole lot more than the bottom 95 
percent combined. Think of that. In our country the top 5 percent of 
the earners pay a lot more than the bottom 95 percent combined.
  Then the question is: Is it fair to say about the United States 
progressive income tax code that the wealthy don't pay their ``fair 
share'' when the top 1 percent pays 38 percent, the top 2 percent pays 
almost half of all the taxes? I think that is a canard. I am not trying 
to defend rich people here, but what I am saying is it is unfair to say 
they are not paying their fair share.
  Finally, my colleague Dick Durbin--who I believe is going to be here 
shortly, and I hope will respond to what I am saying here--was 
interviewed on MSNBC on November 30. He said something that in 
retrospect I suspect he would say is inaccurate and would take back, 
but I want to quote him. He is talking about the payroll tax holiday 
and he said:

       Jon Kyl rejected it. He said, no. There's no way we're 
     going to impose any taxes on the wealthy people in this 
     country.

  Well, of course, Senator Durbin knows that we impose a lot of taxes 
on the wealthy people in this country. He simply misspoke. I understand 
he simply misspoke, but it is a manifestation of the political dialogue 
here of one side accusing the other of favoring the rich over the poor. 
Can't we ask them to contribute a little bit more? Well, if it is the 
IRS, we are not asking them, we are forcing them. When the top 2 
percent of all of our citizens pays half of all of the taxes and the 
bottom half pays none, when the top 5 percent pays 95 percent of all of 
the taxes and 95 percent pays the rest, it is hard to say the rich are 
not paying taxes.
  In any event, my colleague Senator Durbin, I am sure, would 
acknowledge that I have not said nor has anyone said, ``There is no way 
we are going to impose any taxes on the wealthy people in this 
country.'' They are paying a lot of taxes.
  Finally, we extended this tax cut holiday for 1 year a year ago in 
December. We did that as part of an overall budget deal. The Vice 
President of the United States, the leaders of the House and Senate 
negotiated this and the President went along with it. It was part of an 
overall agreement in which we said we will extend all of the existing 
tax rates, the so-called Bush tax cuts, that is, the rates that have 
been in effect since 2001 and 2003. We said we would extend this 
temporary tax holiday from the payroll tax cut. We would extend all of 
those. I supported that.
  Frankly, that was the right thing to do, to extend all of these 
existing rates. The country at that point could not have stood an 
increase in taxes of over $4 trillion, which is what it would have been 
not to extend the so-called Bush tax cuts. If we can do that again, I 
am all for it. I will support the extension of the payroll tax holiday. 
I will support the extension of the payroll tax holiday with other 
things being done as well. The point is there are times when it 
absolutely does not make any sense and there are times when it could 
make sense.
  But because of the four other reasons I pointed out, this is what 
pays for Social Security benefits, it is bad economic policy, it is bad 
tax policy, and certainly the surtax that would fund this is something 
that would very much hurt small businesses and job creation. Those are 
reasons to be very skeptical about continuing this supposedly temporary 
tax holiday, and we should therefore only do it under circumstances 
that, in effect, override these objections, one of which would be to 
extend all of the taxes that expire at the end of next year--at the end 
of 2012, and to include this in them. That would be a good idea. It is 
also a good idea to ``pay for'' it; that is, to find an offset for the 
revenue loss here because we cannot leave Social Security holding the 
bag. When we borrow 40 cents of every dollar in general revenue to pay 
for this lost revenue, obviously, that is not a good idea. So if we can 
find offsets for it, that is another factor in deciding whether to do 
it. I believe Republicans will work to find offsets if we, in fact, are 
going to extend this payroll tax holiday.
  Clearly, you don't necessarily need to find offsets to pay for any 
tax or every tax reduction. We are keeping current rates where they 
are, for example, when they otherwise would expire at the end of next 
year. Some people say: Well, that is the Bush tax cuts. That is right. 
Did revenues to the Treasury go down when the Bush tax rates were 
reduced in 2001 and 2003? No. Tax revenues--the amount of money coming 
into the Treasury of the United States--actually increased after the 
so-called Bush tax cuts. So sometimes, for economic growth reasons, 
keeping taxes where they are or even reducing them in some cases makes 
a lot of sense. In this case, however, because you are having to take 
it out of the Social Security trust fund, you need to replenish that 
money, you need to pay for it, and that is why we need to have the 
offsets I spoke of.
  The bottom line is the payroll tax cut holiday can be a little 
confusing. There are some very important reasons not to do this again. 
It doesn't produce a good result and it can produce some bad results. 
If there are offsetting policies that more than overcome these bad 
features, then it is something I think a lot of Republicans will look 
to. As I said a year ago, I was willing to support the extension of it 
because we extended the other tax rates as well. If we do that again, 
obviously, it is something I would be supportive of.
  I hope this helps to clarify the debate when we deal with this 
subject later on this week and perhaps even in the final week--that we 
at least hope is the final week we are here--before Christmas.
  Mr. President, I note the absence of a quorum.
  The PRESIDING OFFICER (Mr. Coons). The clerk will call the roll.
  The assistant legislative clerk called the roll.
  Mr. LEAHY. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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