Be Leery of Temporary Taxes

In an attempt to quell the public's fear of increased permanent taxes, the government sometimes initiates temporary taxes.  These temporary taxes are anything but temporary.  More times than not, these taxes become a permanent increase in our tax structure.  By the time they become permanent the taxpayer has already accepted the new tax therefore there is not much fanfare or press given to temporary taxes that are extended indefinitely. 

An example of this is the Federal Unemployment Tax.   The FUTA tax covers the administration of federal unemployment funds and assists unemployment programs in all states.  In times of high unemployment the program the fund permits states to borrow from the Federal Fund.  Assuming a state has an unemployment program, FUTA tax is an employer only tax of 0.8% of all payroll per employee up to $7,000 of wages per year.  The 0.8% includes a temporary surtax of 0.2% enacted by Congress in 1976.  Every time this surtax was about to expire Congress would extend it for another specified time period.  Most recently the surtax was supposed to expire in 2009, but it was once again extended through 2010.  So from 1976 to now 2010 (34 years) we have had a temporary FUTA surtax.

 

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