Small Businesses Fall Prey to Payroll-Tax Cut Failure

Payroll-tax cut failure will affect small business

Payroll-tax cut failure will affect small business

The most recent urge by Washington, to extend the payroll-tax cut, seems difficult to be accepted by Fannie Mae and Freddie Macs’ regulator and a few others. The firms’ regulator believes that the payroll-tax cut extension will further complicate the possibility of fixing the failed mortgage finance companies.

A measure that could pay for a two-month payroll-tax cut extension by raising fees charged to the lenders by Fannie and Freddie was passed by U.S. Senate Saturday. It was decided that the fees would be collected over a period of 10 years by Fannie and Freddie to cover the extending payroll-tax cut cost.

This move was opposed by the Republicans in the House of passing on an 89-10 vote. But last week, the Republicans approved their own version of the plan which would also trek the mortgage fees. This plan is expected to complicate Fannie and Freddie regulator’s job of conserving the firms’ asset.

Joshua Rosner, managing director at investment firm Graham Fisher & Co. said, “If Congress wants to revamp the firms sooner, it will now have to “find money” to pay for the uncollected funds it has already spent.”

But would it still solve the issue? And who has to be blamed? Those at the top of the financial chain who are directly accountable for creating the great recession or the politicians who don’t seem to discover the political determination to force and fix the issue. Well, this could become a never ending topic of debate.

What could happen?

If no immediate action is taken before January 1, nearly 160 million Americans will see an average payroll tax hike of $1,000 for each taxpayer. This means, their payroll-taxes would shoot up to 6.2 percent. 2.5 million unemployed workers will lose unemployment benefits. There will be a noticeable 27.4 percent drop in federal reimbursements from Medicare patients. Every paycheck would go down in the nation by January 1. In 2012, every employer would cut an extra $1000 from an employee who earns $50,000

And who would suffer the most?

It’s the middle-class consumers and small businesses who are the chief beneficiaries of the payroll-tax cut and, perhaps, the real job creators. There have been many small businesses that have suffered in the financial meltdown during the great recession. It’s not just the matter of retaining employees, but also the increasing costs of accommodation, fuel and health insurance that have wounded the small businesses.  The payroll-tax hike will leave small businesses with nothing more than reduced commercial credits. Due to the payroll-tax hike, the business owners would feel the need to use a small amount of their home equity spending to keep their businesses running smoothly.

There are 12 days remaining before the current payroll-tax cut expires and the threat of failure in the extension of payroll-tax cut impends as the New Year countdown begins.

 

Dhwani Shah

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