Question of the Week: Payroll Tax

These questions are culled from phone calls, letters, faxes and e-mails sent to Rep. Gallegly's Camarillo, Solvang, and Washington offices. Each week Rep. Gallegly adds another question and answer. Please add your comments.

December 23, 2011

Question: Will there be changes to the payroll tax rates, Medicare physician payments, and unemployment benefits on January 1, 2012?

Answer: No. On December 23, the House of Representatives and the Senate both approved H.R. 3765, which provides a two-month extension of the current payroll tax rates and continues federally funded unemployment insurance benefits through February 29, 2012. In addition, the bill continues the current Medicare reimbursement rates for physicians.

Prior to 2009, employers and employees each paid 6.2 percent of the employee’s wages for Federal Insurance Contribution Act (FICA) or payroll taxes. These taxes are earmarked for the Social Security and Medicare programs. In 2009, the employees’ share of this tax was temporarily reduced to 4.2 percent until January 1, 2012. Also on January 1, Medicare reimbursement rate for doctors was scheduled to be reduced by 27.4 percent.

To address these issues, the House of Representatives passed H.R. 3630, which would have delayed the tax increase for one year. The bill would have also stopped the Medicare reimbursement rate cut for doctors and actually would have increased doctors’ pay by 1 percent in 2012 and another 1 percent in 2013. I supported H.R. 3630 when it passed by a bipartisan vote of 234 to 193 on December 13. However, the Senate version of the bill only extended the tax breaks and current reimbursement rates for two months. The December 23 vote includes pledges on both sides that the House and Senate will meet to compromise on a full-year extension.

The bill does not add to the deficit. The costs of these extensions are paid for by increasing fees charged by government-sponsored enterprises, including Fannie Mae and Freddie Mac, to lenders for assuming the credit risk on loans in the secondary mortgage market.

For more information on my positions on economic issues, please see my Key Issue: Economy page.

For previous Questions of the Week chronologically and by topic, please see my Questions of the Week page.