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Members of D.A. Davidson & Co.

A Payroll Tax Holiday Will Put the U.S. Back to Work

"A voluntary payroll tax holiday could play a pivotal role in boosting disposable income and incentives to work. Although Congressional Republicans are resisting this idea, that is a mistake. If structured correctly, it would also make Social Security more sustainable. The payroll tax withholding rate, currently 6.2 percent for the employee component, could be cut to zero for the first two years, delivering a much-needed income boost for workers who opt in. The rate could gradually rise after that, returning to 6.2 percent for the seventh year. 


...This would increase disposable income for existing workers, which would spur consumption and ignite a virtuous cycle that would encourage even more hiring. Under such a program, an average worker aged 40 earning an average wage ($53,756 in 2019) would receive $15,767 in increased disposable income over the next six years.


... This temporary payroll tax holiday could be offset by raising the retirement age for those who choose to participate. For instance, the full retirement age, now 67, could be increased by six months each year until it reaches 78 or retirement, whichever comes first.


... Unlike a mandatory reform, workers who opt for the payroll tax holiday would do so willingly in exchange for an extended retirement age. Those who wish to retain their current retirement benefits would continue in the existing program. This would give them greater freedom and flexibility to customize their retirement."


(A Payroll Tax Holiday Will Put the U.S. Back to Work dated July 27, 2020 by Scott Minerd Global Chief Investment Officer and Chairman of Investments with Guggenheim Partners)


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