Payroll Tax Cut Extension Could Give Consumers $85/Mo.
EmailThanks to the payroll tax cut renewal, a worker could continue to get another $85 a month.
The House and Senate reached an agreement late Wednesday night on legislation to renew the two percentage-point cut in the payroll tax, which was set to expire at the end of this month, as well as jobless benefits for millions of unemployed Americans.
It is hoped that the deal will be passed off for a vote in the House and Senate this week.
“For working families facing tight budgets, this can make a real difference in paying for groceries, school supplies, and the monthly rent or mortgage payment,” Gary Burtless, economist with the Brookings Institution, said. “If Congress had allowed the payroll tax cut to lapse, these families would have immediately felt the squeeze of a smaller paycheck. Many would have cut their spending, slowing the pace of the current recovery.”
For a worker or family earning $50,000 a year in wages, the payroll tax cut reduces Social Security tax withholdings by $1,000 a year, he said. This boosts after-tax income by about $85 a month.
For families further up the income ladder, it is less clear whether they would see such an immediate impact of letting the payroll tax cut end, Burtless said.
“These families do not live from paycheck to paycheck. They may be using the tax cut to pay off old credit card bills or add to their saving,” he said, adding that many affluent workers have jobs that depend on selling products and services to families who are in tight economic circumstances.
Most of the major pieces of the legislation that were disputed are a continuation of current law, including the rates doctors are paid by Medicare, so they go into effect immediately. There will also be a reduction in the maximum unemployment benefits to 73 weeks from 99 for those hardest hit. Some of the policy changes associated with what is rumored to be the spending offsets will require time to implement, according to J.D. Foster, senior fellow in the economics of fiscal policy at the Heritage Foundation.
Officials have estimated that another 10-month extension of the payroll tax cut may cost the Treasury about $100 billion.
Though an extra $85 or so a month may sound like small change to some, Foster said the extension of the payroll tax holiday is significant for many families.
“Family budgets across the country are under intense pressure because of the lingering effects of a very weak economy. Payroll tax relief really helps in this regard,” he said.
However, said Foster, another extension does not extend help to the economy overall because there is still no such thing as a free lunch in fiscal policies.
“Families have more purchasing power, but government has to borrow the money that would have otherwise been collected in tax revenue, and that borrowing means dollar for dollar less capital available for the rest of the economy,” he said.
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So what is going to happen when, at the end of this year, this 2% cut expires and the “Bush tax credits” expire. The average family is going to see their tax bill increase by a couple thousand dollars. How will that affect their personal finances and the general economy? We still have no federal budget and spending continues with no one controling th eoutflow. Health care reform will be one step closer and it has been said by the CBO that it will cost billions. When does this Government stop this race to ruining the economy? When do they see we are broke? When will any of them stand up and stop the politics?
Posted by: Give Me a Break | February 16, 2012, 1:14 pm 1:14 pm
“For families further up the income ladder, it is less clear whether they would see such an immediate impact of letting the payroll tax cut end, Burtless said….“These families do not live from paycheck to paycheck. They may be using the tax cut to pay off old credit card bills or add to their saving,” ” — Wh3ere does he get his info? So what someone making $60K or $70K wouldn’t notice the money gone? They need to stop making generalizations. If people live within their means (not talking about the 1% here) everyone would feel the burden the same.
Posted by: NoSpin1600 | February 16, 2012, 1:49 pm 1:49 pm
up to $85 a month?
GOOD, IT WILL COVER THE COST OF FOOD, GAS AND RENT NOW THAT INFLATION IS HERE…
thanks Obama!
Posted by: Cali | February 16, 2012, 2:10 pm 2:10 pm
yea thats just great. Buy groceries, mortgage payments? What about the cost of fuel again here we go. Most families are now working to put gas in their cars and oil for heat in their homes. Give me a break, we are so screwed. The worst is yet to come. Ron Paul for President, Please!!
Posted by: art | February 16, 2012, 2:14 pm 2:14 pm
x
Posted by: deanbob | February 16, 2012, 2:24 pm 2:24 pm
What this so-called payroll tax cut is really about is the government’s refusal to raise the taxes on upper income people so they pay their fair share of the cost of government. Instead, they (the politicians) have successfully hoodwinked the general population into thinking that they’re getting a tax break. The money being sucked from social security which, BTW is the people’s money and not the government’s money as is that in the general tax fund, will have to be made up in future. Rather than being pleased with what these ne’r do well politicians are doing with your money, you should be outraged.
Posted by: john locke | February 16, 2012, 2:59 pm 2:59 pm
I have seen figures on various sources from $40 to $85 a month. Does anyone think that will make a real difference in a families purchases or, consequently, significant increases in consumption? Can you explain why it had no real impact last year? Our GDP is growing at less than 2%. That is anemic at best and does not represent growth than will result in more jobs.
I find the comments that this will make a real differnce to be suspect and probably just propaganda. How do you know they won’t use it to pay off bills or put it in a bank account? What I do know is that this will compound what is already a real problem—SS’s march toward insolvency. Won’t we have to pay for this later? Will it be worth it for a few bucks a month when we have to reduce SS benefits because we can’t pay for them anymore?
Posted by: Perplexed | February 16, 2012, 3:17 pm 3:17 pm
Thanks Obama for fighting for regular people like me. @ Give me a Break – Give ME a BReak from all the Doomsday , the sky is falling , anti government BS that got us here. You got sour grapes , go somewhere else. We’re collectively tired of all the crying & fear tactics. Anyone can look into the future & say ‘Oh NO! , Watch out!” & be wrong. Hey every time I try to say what’s going to happen in the future…I’m wrong, just as you are Give Me A Break. So Give Us All A Break & stop crying & lying.
Thank God for Obama for not letting the 1% drag us any further into a hellhole…because of their ‘convictions’ (made up) , because of their fight for the job creators (geez, what a line of BS, they’ve had their tax cuts (Bush tax cuts for the wealthy) for many years. As far as I can see, it just makes the rich greedier & outsource more. Welfare for the rich & people using & abusing welfare needs to stop. & the GOP is just gonna create more loopholes & breaks for the rich…why? Because they are self serving & greedy. Again, THANK GOD for Obama. God is good.
Posted by: MrE_mann | February 16, 2012, 3:20 pm 3:20 pm
John Locke: Maybe you should be concerned about the ‘fair share’ that the 47% who pay NO federal income taxes. I’m really sick of hearing the democrats talking points regurgitated ad nauseum when so many pay nothing and get much more in benefits than they paid in. How is that fair? Fair is everyone has some skin in the game based on their income. No one group should pay a disproportionate share.
Posted by: Perplexed | February 16, 2012, 3:20 pm 3:20 pm
“up to $85 a month? GOOD, IT WILL COVER THE COST OF FOOD, GAS AND RENT NOW THAT INFLATION IS HERE…thanks Obama!” Granted $85 per will not change anyone’s lifestyle – I’m certainly not going to take out a mortgage or by a new car when (or if) I see it on my paycheck. On the other hand, $85 is $85 and I don’t know anyone who saw a $20 bill every week laying on the sidewalk every week who wouldn’t put it in their pocket.
Posted by: MyTake | February 16, 2012, 4:01 pm 4:01 pm
Early withdrawal of SS, wonder what will happen when their SS checks are cut in half, ($1000now) if there will be any. But the democrats want you to work until you die, so you won’t withdraw anything you payed in.
Posted by: Lizzie | February 16, 2012, 4:46 pm 4:46 pm
Not to worry people. As soon as the election is over, they’ll stop with this vote buying.
Posted by: newcountryman | February 16, 2012, 5:51 pm 5:51 pm
This payroll tax cut is undermining social security by stripping it of its’ funding and the sheeple are going along with it?
Posted by: Jo | February 16, 2012, 6:45 pm 6:45 pm