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Surprise: A tax cut for you

How did this happen? A tax cut for virtually every business. Is it a Washington first, or did they just screw up and miss the opportunity to continue to squeeze money out of our small-business dealerships?

I’m referring to the expiration of a 35-year old “temporary” unemployment surtax that actually expired last week. Haven’t heard anything about it? Not surprising – after all, the daily news from Washington is all consumed by the raging budget/debt ceiling battle. Halleluiah, this one got away from them!

In a nutshell, a 0.2 percent surtax on the first $7,000 of an employee’s wages was passed by Congress in 1976 as a “temporary” surcharge paid by employers (not workers) to help pay for unemployment benefits. What a great textbook illustration that once Washington passes a tax increase, even a “temporary” one, it’s not likely to ever disappear. This one was “renewed” at least eight times and President Obama proposed making it permanent which, fortunately, Congress has disregarded.

Accordingly, the expiration of the surtax lowers the federal unemployment tax rate from 0.8 percent to 0.6 percent for employers. Admittedly, this 25 percent ($14 per worker) reduction doesn’t mean big bucks for most dealers (Wal-Mart with 1.4 million employees will reportedly save $20 million annually) but it does effectively lower the tax from $56 to $42 per worker each year, and any tax break for small businesses these days should be applauded.

It’s notable that these federal unemployment taxes are paid by employers in addition to higher state unemployment taxes, which have been increasing in many states. The state taxes cover the unemployment benefits while federal unemployment taxes provide loans to states when their unemployment funds are depleted. Also, the federal taxes help pay for any federal extension of benefits in times of high unemployment, like now. Moreover, since the reserves in the federal fund have been depleted since unemployment skyrocketed and benefits were extended, the federal unemployment benefits these days are being paid out from general funds and that, of course, adds to the federal deficit.

Still, it’s good to pause and be pleased whenever we get a tax reduction that directly goes to our business. After all, unlike most business taxes that are paid based on profits, unemployment taxes are not and, therefore, are the worst kind of tax burden.

Comments

3 comments on “Surprise: A tax cut for you

  1. Gene Faatz

    Although this will mean almost nothing to us small businesses it was also countered with a special assessment by the state of New Jersey to pay the loan interest from the Fed. on unemployment benefits

  2. P J Hyde

    I stopped getting excited about tax breaks a long time ago. Our tax laws are so complex that it makes it hard to see to see the big picture.

    When some tax break comes along in one part of the tax codes, a tax increase gets buried somewhere else. Every year, for the last 20 years, I have compared the taxes I paid with my gross income, and for the last 20 years it has consistently been the same percentage plus or minus 1 to 2%, regardless of how much money I made, despite whatever tax break was being promoted in the press, and regardless of whether I was working as an employee, or as the owner of a business. The only years that showed any significant change in my overall tax/income ratio were years when the business wasn’t profitable, which also happened to be the years I got the largest refunds.

    Our tax code is so complicated because politicians love to use it as a means to earn campaign contributions by catering to special interests, or by promoting themselves as the champion of the little guy by going after some tax break for the “rich”. Sen Rockerfellers (WVA) is a perfect example. On his web page listing his deficit reduction proposals, he is trying to eliminate the interest deduction for boats as a second home. Not the interest deduction for RVs, or homes, just boats. He either believes that everybody who owns boats are wealthy people taking unfair advantage of tax law (which he calls loopholes), or he is dishonestly creating an image as the nemesis of wealthy yacht owning tax cheats to help him get re elected.

    The only fair tax is a flat tax. Its the only way to make sure all Americans pay their fair share, it makes it hard for special interests to exert unfair influence on politicians. Until Americans wake up to this reality and insist on change, our taxes will continue to shift from a source of revenue to a source of corruption.

  3. John Jackson

    I just got a payroll tax surcharge to pay the interest that NYS had to pay the Federal govt’s loan for unemployment benefits. Of course I did not lay anyone off……yet.

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