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NFIB Talking Points: Payroll Tax Holiday Update

Dec. 18, 2008

NFIB recently proposed to Congress a six-month payroll tax holiday as part of an economic stimulus package. NFIB was the first organization to propose the tax holiday and will continue to lead the effort in support of it on Capitol Hill.

NFIB has met with key members of the Senate and their staff, as well as formally outlined support in a letter to all members of Congress. NFIB Tax Counsel Bill Rys was also quoted in The Hill regarding NFIB's action on this critical small business issue.

"You can't ignore the fact that the weakness in the economy is with spending. If you remove the payroll tax, that would give an incentive to spend again," Rys said. "It puts money back in the pockets on both sides of the economy."

How would a payroll tax holiday help small business owners?

  • A payroll tax holiday for both the employee and employer would immediately put money back into the hands of consumers and business owners at a time when economic activity has ground to a halt.
  • Providing payroll tax relief for the employer reduces the cost of labor, meaning that an employer is more likely to keep an employee on the payroll through tough economic times since the cost of that employee is reduced.
  • Currently, economic activity has slowed dramatically making it harder for small business owners to meet the regular costs of doing business and leading them to curtail their business plans and investments.
  • Recent data from the NFIB Small Business Economic Trends survey indicates the sales index for small businesses is at an all time low.
  • The slowdown in sales is having a broader effect on the overall economy: The SBET survey also shows historic lows in planning to hire, make capital investment and replace investment.

 

How much of an impact would a payroll tax holiday have on the economy?

  • The payroll tax raises about $625 billion annually, which is equal to about 7 percent of all disposable income.
  • This is a considerable amount of money that can be immediately put back into the economy.
  • The payroll tax is the primary tax paid by the majority of small businesses and households.
  • No matter how unprofitable the firm is, the business has to pay this tax.
  • This is an especially big burden in difficult economic times.

 

How would the payroll tax holiday help workers?

  • Returning money directly to workers in their paychecks will help them with ordinary costs faced by the typical household and is an incentive for workers to spend more.
  • The tax holiday is most beneficial to the workers who earn less.
  • Since all workers pay the same tax, the percent taken from a lower-wage worker is a bigger portion of their paycheck than from a higher-wage worker.
  • The tax relief goes to the individuals who need it the most.
  • If your taxable income is $40,000, you would save $207 per month under the plan.
  • If the taxable income it $60,000, you would save $310.

 

The payroll tax holiday would be a big boost to America's job creators and reduces the cost of labor. Here are some examples of how it would save small business owners money each month:

  • If you have 10 employees who make an average of $40,000 each, the small business owner would save $2070 per month.
  • If you have 5 employees who make an average of $60,000 each, the small business owner would save $1550 per month.
  • The payroll tax holiday would also give a big boost to self-employed since they are responsible for paying the employee and employer side of the payroll tax.
  • If you are self-employed and your taxable income is $75,000, you could save $775 per month.

 

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