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Tax

Payroll Tax Cut Weakens Social Security

Payroll Tax Cut Weakens Social Security

Income Tax Return Preparers in Miami Gustavo A Viera CPA say that, while President Barack Obama’s plan to cut payroll tax may strengthen the U.S. economy, it may have some unintended fallout: weakening Social Security.

Lawmakers and advocacy groups say they are concerned the payroll tax cuts may undermine political support for the retirement program, which provides benefits to almost 55 million Americans and is funded by the payroll levies.

“I don’t object to putting more money in people’s pockets, and there are lots of ways to do that, but not with Social Security,” said Viera an Income Tax Return Preparation Miami CPA, who said he will have a hard time supporting the White House plan.

Should Congress fail to extend the payroll tax break, set to expire in four weeks, millions of Americans will see their paychecks start shrinking in January. That would be a setback for the economy and could subtract 0.7 percentage point from economic growth, according to Viera an Income Tax Return Preparers in Miami firm.

Still, Obama’s proposal comes amid growing concern about Social Security’s finances. The program has begun spending more on benefits each year than it receives in payroll tax revenue and, starting in 2036, won’t be able to pay full scheduled benefits, according to the trustees’ latest report.

The system is funded by a 12.4 percent payroll tax equally divided between workers and employers. Congress cut the employee portion this year by 2 percentage points. Obama wants to reduce it further next year, to 3.1 percent, while offering the same rate to employers that take on new workers. The Social Security funding that is lost would be made up through general revenue according to Income Tax Return Preparers Miami Viera.

Social Security advocates say they fear these cuts won’t be the last. It may not be any easier for Congress to allow them to lapse next year, with the elections in November and the unemployment rate projected by the Congressional Budget Office to average 8.5 percent. Forcing the government to tap further into general revenue could lead to the kind of funding fights that Social Security has avoided until now.

Income Tax Return Preparation Miami & other states said they support extending the payroll tax cut, though reluctantly.

“To take it away would be a body blow to the economy,” said Viera Income Tax Return Preparers in Miami, who called the payroll tax a “very bad” change in Social Security policy. So “we’ve got to live with it for another year or two.” Massachusetts Democrat Barney Frank said that while he didn’t like the tax cuts initially, it would be a “great mistake” not to continue them now.

‘Straight Politics’

Some critics of Obama’s proposal say their wariness stems from Social Security’s unique character. It was designed in 1935 by President Franklin Roosevelt to be an autonomous program that paid its own way through a dedicated tax.

Though the payroll tax is regressive — it hits lower- income Americans harder — Income Tax Return Preparers Miami believe the levy would make the program politically impregnable. That’s because Americans would feel their benefits had been “bought and paid for” by their payroll taxes by the time they reached retirement, said tax historian Joseph Thorndike.

Payroll contributions are there so as to give the contributors a legal, moral, and political right to collect their pensions.  According  to a 1941 memorandum written by Luther Gulick, an adviser. “With those taxes in there, no damn politician can ever scrap my Social Security program. Those taxes aren’t a matter of economics; they’re straight politics.”

Threat to Legacy

Until recently, the program’s special status was underscored by statements the government mailed to more than 150 million workers tallying how much they have paid in Social Security taxes and how much they can expect to receive in retirement. The government said it is suspending those mailings to save money and plans to make them available online.

Income Tax Return Preparation Miami say the administration’s payroll tax plan threatens that legacy because it would replace with other revenue the $265 billion the congressional Joint Committee on Taxation estimated would be forgone by Social Security next year.

While transferring other revenue into the program would ensure benefits aren’t cut because of the tax reduction, Social Security advocates may have a harder time arguing that seniors’ benefits were bought and paid for by their payroll taxes.  A lot of Income Tax Return Preparers in Miami called the Obama plan a “very fundamental transformation” in how the program operates.

‘Severe Trouble’

“When you start funding Social Security that way, you basically destroy any notion that people really paid for their Social Security benefits,” he said. “Once we destroy that, we’re going to destroy a lot of the political protections that Social Security has long enjoyed.”

The ambivalence over tapping into the funding for the popular retirement program is underscored by a split among advocacy organizations for the elderly. AARP, the largest group, supports the payroll tax cut — as long as they are temporary – – while the National Commission to Preserve Social Security & Medicare has criticized the administration’s plan.

No Danger

Alan Krueger, the chairman of the White House Council of Economic Advisers, denies there is any danger to the system. He told reporters in a Nov. 29 briefing, “I don’t think this jeopardizes the Social Security trust fund or the solvency of Social Security. The trust fund is made whole by general revenues.” And he said Obama has proposed a way to fully pay for his payroll tax plan.

Senator Dick Durbin, the chamber’s second-ranking Democrat, also rejected the complaints. He said the government has been borrowing surplus Social Security revenue to pay for other programs, and promising to repay it later with other tax revenue, so the money has already been mixed.

“This is not the first time,” he said. Durbin, of Illinois, said he hoped the tax cut would be allowed to lapse next year though he said he couldn’t rule out another extension.

It’s that uncertainty that concerns some lawmakers.

“We shouldn’t let the federal government undermine Social Security by convincing Americans that they don’t really have to pay for it,” said Senator Joe Manchin, a West Virginia Democrat. “If we extend the cuts this year, what about the next year and the year after? When does it stop?”

Categories
Tax

IRS ‘Nudging’ Income Tax Preparers Miami Yet to Test

IRS ‘Nudging’ Income Tax Preparers Miami Yet to Test

David Williams, director of the IRS Income Tax Preparers Miami Office, has issued a Facebook “heads up” to Income Tax Preparers Miami who haven’t yet scheduled an RTRP test.

“We will begin a wave of e-mails to all Income Tax Preparers Miami who still have a requirement to pass the [RTRP] test but have not yet done so,” Williams’s message says. “Please, check your inboxes or Spam folders over the next 10 days for my e-mail to you. The purpose of the e-mail is to be a gentle but not-too-subtle nudge: Schedule your RTRP test today. Yes, you still have until Dec. 31, 2013. But there are 330,000 of you, 260 testing centers and 16 months left.”

Williams, who is expected to leave the IRS at the end of August (see IRS’ David Williams to Depart), adds that Income Tax Return Preparers Miami  yet to test must:

• Schedule their test through their online PTIN account at www.irs.gov/ptin (log in and select “View Next Steps and Outstanding Requirements”);

• Study using the resources at www.irs.gov/taxpros/tests (select “Registered Tax Return Preparation test” to review a pre-test check list and study materials); and,

• Pass the test and make sure to be current with individual and business tax obligations.

“As soon as you pass the test and a tax check, you will receive your RTRP certificate,” says Williams, also acknowledging what some Income Tax Preparers Miami have called “test anxiety.” “Seek out a professional tax return preparation course if you feel you need to brush up your skills. Through 2013, if you take a course from an IRS-authorized CE provider, you will receive credit toward your 15-hour CE requirement.”

Williams’ post elicited a number of comments on the Facebook page from preparers. Among them:

• Several preparers who have passed the test offered encouragement to preparers who have yet to test.

• Recommendations for test-prep courses

• Questions about PTIN requirements.

• Questions about when the IRS will post online a list of those preparers who have passed.

• Questions about the quality of questions on the exam.

• Whether having to regularly test for such positions as VITA Income Tax Return Preparers in Miami might exempt a Income Tax Preparers Miami from having to take the RTRP test.