2-pct. tax cut extension now law

President Barack Obama signed into law a compromise bill extending a 2-percent cut in federal tax through December 2012, a welcome relief among CNMI workers dealing with work hour cuts because of a slow economy, gas prices now matching the hourly minimum wage, utility costs that are still high, and all others that make the cost of living on the islands high.

The new law extends a cut in the Social Security tax rate-from 6.2 to 4.2 percent-for another 10 months.

The 2-percentage point tax cut was supposed to expire this month, but the U.S. Senate and House of Representatives passed a bill two Fridays ago to extend it. Obama signed it into law five days later.

For those earning the CNMI minimum wage of $5.05 an hour, that 2-percent tax cut would mean some $8 per payroll or $16 a month that won’t be deducted from their paycheck and could go toward buying food and other needs.

Delegate Gregorio Kilili Sablan (Ind-MP) said the payroll tax extension should be worth about $500 on average to a family in the CNMI this year.

CNMI workers who have long been paying Federal Insurance Contribution Act taxes welcomed the extension of the 2-percent tax holiday. FICA covers Social Security and Medicare taxes.

But for Filipino and Korean workers in the CNMI who are just starting to pay FICA taxes in the wake of the federal takeover of local immigration, the new law is a bitter pill to swallow.

Martin Venaranda, 42, said he and his fellow Filipino employees in their security agency started seeing FICA deductions from their paychecks in January, which he said means some $100 going toward federal and local taxes every month.

Venaranda, a security guard earning minimum wage, said their work hours have been reduced from 80 to only between 72 and 76 hours biweekly.

“We’re getting paid less, and now we have to pay federal taxes. We also have to pay for costlier gas, pay for house rental, food. At the end of each payroll, we’re left with almost nothing,” Venaranda told Saipan Tribune in an interview on Saturday.

If there’s one good thing that Venaranda thinks could come out of paying FICA taxes, he said he and others like him would have something to look forward to after 10 years or upon their retirement. But that, he said, depends on whether he’s still working on U.S. soil by that time.

The FICA payroll deduction consists of 4.2 percent instead of 6.2 percent for Social Security, and 1.45 percent for Medicare. This is on top of the CNMI taxes that workers in the Commonwealth pay.

The employers’ share is 7.65 of the employee’s salary: 6.2 percent for Social Security and 1.45 percent for Medicare.

Rep. Edmund Villagomez (Cov-Saipan) and Rep. Fred Deleon Guerrero (R-Saipan) separately said it’s always nice to have an extra budget for anything, in this case in the form of a 2-percent tax cut.

The tax cut and unemployment benefits are part of a $143 billion measure that also puts off cuts in payments to doctors by Medicare, the national health insurance program for the elderly, until after the November elections.

Sablan said anything that can be done so working families will keep their hard-earned money is “a good thing right now.”

“People need help putting food on the table. They need help paying their [Commonwealth Utilities Corp.] bill. They are facing higher prices for gasoline. The payroll tax extension, which should be worth about $500 on average to a family in the Northern Marianas this year, will provide that help. And it will help our economy, too, because families are going to spend that money as soon as they get it,” he told Saipan Tribune.

Sablan said there were a lot of Republicans in the U.S. House of Representatives who wanted the payroll tax on middle-class families to go up. But he said he’s “very glad that some of them changed their mind and decided to go along with President Obama’s economic plan.”

“Now, we have to get to work on the rest of the American Jobs Act that the President put forward in September. Much of it is in the budget he sent to Congress last week. He wants more money to hire first responders-EMTs, police, firefighters-and more money for roads and other infrastructure to put people to work,” he said.

The payroll tax cut became a centerpiece of the jobs plan Obama unveiled in September-and of a re-election strategy that analysts say seeks to cast his Republican foes as protectors of the rich and out of touch with the worries of working families.

Sablan, the CNMI’s first nonvoting delegate to the U.S. House, said that of particular importance are provisions supporting education, which is also his priority.

“The President wants $10 billion to pay teachers and $6 billion to renovate schools. He wants to continue to increase Pell grants for college students and invest $8 billion in community colleges, like [the Northern Marianas College]. And he wants to make the American Opportunity Tax Credit permanent, which is worth up to $2,500 per student per year for families with kids in college,” Sablan said.

He said what Obama wants to do is “get us over the current hard times, while building a base for future economic prosperity.”

“That is a plan that works for the nation and for the Northern Marianas; and I support him fully,” Sablan added.

The Obama administration estimates that for a worker earning $50,000 a year, the tax holiday means $80 a month in extra take-home pay. For better-paid employees, the bonus could total $2,200 a year.