Congress is often justifiably criticized for being oblivious or indifferent to real-world impacts of their legislation. While more egregious examples exist, this recent proposal provides a simple, practical illustration of how lawmakers blatantly flout common sense.
The payroll tax rate reduction that was instituted in 2011 is due to expire December 31st. Since neither Congress nor the President wish to hit millions of voters with a tax increase in an election year, negotiations are under way to extend the cut through 2012. Negotiations have hit a snag, however, so the Senate has proposed extending the cut for 2 months to buy time. The expectation is that some deal will be struck and the cut will indeed be extended for the entire year.
But suppose it is not. Did it occur to anyone in Congress that 941s, the form businesses use to report wages and taxes to the IRS, is filed quarterly? Did anyone consider the havoc that would be wreaked by requiring the first quarter 941 for 2012 to include one rate for two months and a different rate for the third month? To my knowledge, this would be unprecedented in the history of payroll tax filings. Not only would the IRS have to revise the form, the software millions of business use would have to be patched in some way to allow this anomaly to be handled properly. Most likely a patch would not even be an option for many small businesses using off-the-shelf software, and consequently require the forms to be completed by hand. Costs in dollars and man-hours, although not staggering, would be completely unnecessary and were totally avoidable with a modicum of Congressional foresight.
The mere suggestion of the two-month extension should have resulted in a chorus of objections, but it appears no one involved in the process considers the day-to-day concerns of business worthy of serious attention. If two months was simply arbitrary to allow time for a final deal, why not give a nod to businesses and make it three months, thereby communicating that Congress is not just the stereotypical, out of touch, inside-the-Beltway institution everyone says it is? Perhaps because it is just that.
UPDATE (Monday, 12/19): John Boehner is rejecting the two-month extension on the grounds that "doing tax cuts in two-month increments doesn’t give the economy certainty." While this is not an explicit recognition of the problem discussed above, Boehner implicitly acknowledges the effects on business that can result from the convoluted machinations of Congress.
UPDATE #2 (Monday, 12/19): Now Congress has no excuse. The National Payroll Reporting Consortium has sent a letter to Congress highlighting the difficulties presented by the two-month extension. Additional changes in the legislation not discussed in my original post contribute further to the potential fiasco businesses face, so much so that extending the two-month to an entire quarter is only the third most desirable solution proposed by the Consortium. The cluelessness was worse than I thought.
UPDATE #3 (Monday, 12/19): It occured to me that the National Payroll Reporting Consortium might have had some interest in the full-year payroll tax rate cut that was in effect for 2011, and indeed, they issued a letter after the fact to Congress in January 2011. The letter spelled out the challenges faced by businesses in general and their industry specifically by the passage of the rate cut so late in 2010. Personally speaking, my company had to scrap our payroll program completely and find and implement a new one for all fifty or so of our payroll clients within a matter of weeks last December/January. Not only did we have to purchase new software, we had to implement it with little time for testing and hope for the best. As a result, we have spent 2011 working the bugs out of a hasty system change caused by Congress's tinkering. It appears Congress learned nothing from the experience since the challenges presented by the current legislation are arguably greater than the 2011 full-year cut. Let's hope Boehner is successful in killing this current boondoggle.