Federal workers may not get payroll tax holiday

By Joe Davidson
Washington Post Staff Writer
Monday, December 13, 2010; 8:57 PM

For hundreds of thousands of federal workers, Scrooge seems to be running the merrymakers out of town.

It's the holiday season, but federal staffers, along with millions of state and local public employees, won't get the tax holiday included in legislation that jumped a procedural hurdle in the Senate on Monday.

At the same time, those federal workers, the ones covered by the Civil Service Retirement System, are facing a two-year pay freeze, as are most government employees. On top of that, an agreement reached last week between President Obama and congressional Republicans would end the Making Work Pay program, which provided a $400 annual tax credit.

The result: About 426,000 federal workers covered by CSRS would pay more in taxes next year, while most Americans pay less.

That doesn't sound fair to Joseph A. Beaudoin, president of the National Active and Retired Federal Employees Association. "Offering relief to all workers - both retirees of the private or public sectors - is a matter of equity," he said in a letter to senators.

The reason CSRS and other workers are being left behind is that they don't pay into the Social Security system. The tax holiday would reduce the amount paid by other employees in Social Security payroll taxes from 6.2 percent to 4.2 percent.

But CSRS folks can't get that break because they have no Social Security tax to cut.

The Office of Management and Budget acknowledges tax bills would increase for the affected workers but adds: "Crucially, this tax cut is part of a larger framework agreement that secures the extension of other tax cuts including the Child Tax Credit, the Earned Income Tax Credit and the American Opportunity Tax Credit and ensures that unemployment insurance isn't cut off for millions of Americans fighting to find a job."

Meg Reilly, an OMB spokeswoman, said "the cumulative impact of these provisions will be good for America's working families and our economy."

Yet, treating CSRS folks equitably could be easily done, according to the nonprofit Citizens for Tax Justice. Congress could reduce withholding by an additional 2 percent from the wages of workers who don't pay into Social Security, or excluded workers could be allowed to claim a 2 percent credit on their federal income taxes.

But despite protests from employee and other organizations, Congress does not appear willing to give public employees the same break others will get.

"I'm still surprised they are not going to fix it," said Bob McIntyre, director of Citizens for Tax Justice.

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