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Payroll Tax Holiday May Not Survive Year's End

 
 
Reply Wed 5 Sep, 2012 10:02 am
Payroll Tax Holiday May Not Survive Year's End
September 5, 2012
by Tamara Keith - NPR Morning Edition

The Social Security tax rate is scheduled to revert to 6.2 percent next year, up from the temporary reduction — to 4.2 percent on an employee's first $110,000 in wages — which has been in effect since January 2011.

An occasional series, Fiscal Cliff Notes breaks down the looming "fiscal cliff" of expiring tax cuts and deep automatic spending cuts set to hit around the first of year.

If you work, you've probably been getting this tax break: Since January 2011, the government has knocked 2 percentage points off the payroll tax.

For someone making $50,000 a year, the payroll tax holiday works out to about $20 a week.

"We definitely notice it," says Steve Warner of Winter Haven, Fla., while on vacation with his family recently in the nation's capital.

"Most of what we use that for [is] just our day-to-day bills that we have. I mean, it's not like we put it away in savings or anything. It's just more money that we can actually use for gas, food and certain things like that."

That's exactly what Congress and the president had in mind when they created the holiday. But it ultimately didn't have the effect many economists had hoped for, because two years in a row, in the spring, gas prices spiked and ate up a lot of that extra spending money.

"It didn't really help support stronger growth, but it certainly helped the economy," says Mark Zandi, chief economist at Moody's Analytics. "Without it we'd be in a measurably worse place."

But even as the economy appears to still be in a rut, there's little appetite to extend the tax holiday — with its $95 billion price tag — one more time, says Zandi.

A year ago, Zandi was among those pushing for an extension. Now he says it's time to let it expire on Dec. 31. And unless something changes, it will.

Caitlin Morgan, a mother of four boys from Eugene, Ore., says for her family, the extra money was plowed into food and other living expenses. But she seems to accept that the holiday may well be over at the end of the year.

"[The] government needs to prop itself up," she says. "We need to get out of this debt. So you know, if we need to cut a few corners for that to happen, then that's OK. I'm OK with that."
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Type: Discussion • Score: 3 • Views: 2,046 • Replies: 22
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RABEL222
 
  2  
Reply Thu 6 Sep, 2012 10:46 am
Too bad more people who make over 50 grand a year dont feel the same way.
0 Replies
 
oralloy
 
  0  
Reply Thu 6 Sep, 2012 10:43 pm
@BumbleBeeBoogie,
I deeply dread the devastation that the fiscal cliff will wreak on the US military.

But the fiscal cliff, combined with letting the Bush tax cuts expire (middle class too), might well be the only thing that can save the budget.

Maybe we should let doomsday happen.
RABEL222
 
  1  
Reply Fri 7 Sep, 2012 12:32 pm
@oralloy,
Gee, I thought lowering taxes on the very rich was going to lower the national debt according to Romney.
oralloy
 
  0  
Reply Sat 8 Sep, 2012 09:06 am
@RABEL222,
RABEL222 wrote:
Gee, I thought lowering taxes on the very rich was going to lower the national debt according to Romney.


Just because I refuse to drink the DNC Kool-Aid doesn't mean that I drink the RNC Kool-Aid.
RABEL222
 
  1  
Reply Sat 8 Sep, 2012 12:21 pm
@oralloy,
You sure could have fooled me!
parados
 
  1  
Reply Sat 8 Sep, 2012 12:39 pm
@RABEL222,
I think oralloy makes his own personal kool-aide. It's a different flavor from the RNC version. Not quite so fattening to the US debt perhaps.
0 Replies
 
engineer
 
  1  
Reply Sat 8 Sep, 2012 12:55 pm
This is perhaps the best Obama move with stimulus money and the least recognized. The payroll tax holiday gave every working taxpayer a 2% pay raise but did it so quietly that people barely noticed that their checking accounts were just a little bit healthier. Obama's team decided on the payroll holiday after seeing that the Bush stimulus checks just went to pay down debt and did not have the stimulative effect the Bush team planned on. Of course it could only be temporary and now is as good a time as any to let it expire, but it was clever while it lasted.
0 Replies
 
roger
 
  1  
Reply Sat 8 Sep, 2012 01:44 pm
Two things occur to me. First is that social security is already regarded by some as welfare, and a reduction in payroll taxes only encourages the concept. My other thought is that we periodically hear reports on some estimated date of insolvency. I'm not sure I see a connection between increasing expenses and decreacing revenues.
parados
 
  1  
Reply Sat 8 Sep, 2012 03:13 pm
@roger,
Social Security won't be insolvent for almost 20 years.
It's the government that isn't part of a trust fund that continues to be insolvent. That means raise income taxes and cut defense spending as the ONLY choice to balance that budget.
oralloy
 
  1  
Reply Sat 8 Sep, 2012 04:21 pm
@parados,
parados wrote:
That means raise income taxes and cut defense spending as the ONLY choice to balance that budget.


Not the only choice. They could choose to cut social spending.

Cutting the military is by far the worst option.

The best option is raising taxes. Perhaps a European-style VAT tax.
parados
 
  1  
Reply Sat 8 Sep, 2012 04:54 pm
@oralloy,
What social spending are you referring to?
oralloy
 
  0  
Reply Sat 8 Sep, 2012 05:11 pm
@parados,
parados wrote:
What social spending are you referring to?


Any of it. If the government spends money on something, it could potentially stop spending money on it.
parados
 
  1  
Reply Sat 8 Sep, 2012 05:12 pm
@oralloy,
So are you including veteran's benefits in that?
How about interest on the debt?
oralloy
 
  0  
Reply Sat 8 Sep, 2012 05:28 pm
@parados,
parados wrote:
So are you including veteran's benefits in that?
How about interest on the debt?


If they stopped paying interest on the debt, they would default. But it would be possible for the government to stop paying veteran's benefits. Do you think that there is some magical force that would prevent the government from doing so?
hawkeye10
 
  1  
Reply Sat 8 Sep, 2012 05:35 pm
@oralloy,
Quote:
But it would be possible for the government to stop paying veteran's benefits. Do you think that there is some magical force that would prevent the government from doing so?

that would be the will to live....not paying veteran benefits is suicide to any government which tries it so long as the people have enough power to decapitate the government. governments do not wholesale break contracts with the citizens who defended it (or did its dirty work) and live to see another day.
mysteryman
 
  1  
Reply Sat 8 Sep, 2012 05:47 pm
@parados,
Veterans benefits are actually part of the defense budget.
oralloy
 
  0  
Reply Sat 8 Sep, 2012 06:11 pm
@hawkeye10,
hawkeye10 wrote:
oralloy wrote:
But it would be possible for the government to stop paying veteran's benefits. Do you think that there is some magical force that would prevent the government from doing so?


that would be the will to live....not paying veteran benefits is suicide to any government which tries it so long as the people have enough power to decapitate the government. governments do not wholesale break contracts with the citizens who defended it (or did its dirty work) and live to see another day.


Lots of cuts have downsides and backlashes. Cutting military spending for example can get a nation conquered and enslaved.
hawkeye10
 
  1  
Reply Sat 8 Sep, 2012 06:30 pm
@oralloy,
Quote:
Lots of cuts have downsides and backlashes

some will get the government some sass and some will get the government a knife in the back.......yes. do you have a point?
oralloy
 
  0  
Reply Sat 8 Sep, 2012 06:48 pm
@hawkeye10,
hawkeye10 wrote:
do you have a point?


Yes:

Cutting the military is by far the worst option.

The best option is raising taxes. Perhaps a European-style VAT tax.
 

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