Update: The payroll tax cut was allowed to expire on December 31, 2012. You should have noticed an increase in your tax withholding on your first paycheck in 2013.
In a surprising early decision (for Congress), the 2012 payroll tax cut was extended for the remainder of the year. After the House and Senate couldn’t agree on an extension plan last year, they finally called a truce and passed a 2-month extension at the last minute, causing payroll companies and employers to scramble to update payroll tax tables.
I expected a repeat when it came time to extend the 2-month extension, but surprisingly Congress came to an agreement 12 days before the deadline.
On February 17, 2011 Congress passed a continuation of the 2% payroll tax cut through the end of 2012. This tax cut is expected to save families who earn $50,000 a year approximately $20 per week. Which may not sound like a lot, but with the economy still growing at a snail’s pace, any tax increase right now would hurt and could cause American’s to slow spending.
The Cost to Social Security
Even though it is temporary, many people worry that the payroll tax cut will hurt Social Security. As Kay Bell of Don’t Mess With Taxes tells us the costs could be over $89 billion:
Long-range costs: While the deal included some offsets to cover the $50 billion necessary to keep unemployment benefits and Medicare payment provisions (aka the “doc fix”) in place, the Congressional Budget Office estimates the payroll tax cut extension package will cost Uncle Sam more than $89 billion over 10 year.
Expect to hear that dollar amount a lot during the campaigns, both for House and Senate seats and the Oval Office.
Turn on any news channel (or news website) and you will see there is great opposition to the payroll tax cut:
WASHINGTON — Sen. Tom Harkin slammed his own president and party for hatching the payroll tax cut deal that is expected to pass Congress Friday, saying he’s “embarrassed” the Democrats are pushing a measure that begins the “unravelling of Social Security.
Rep. Steny Hoyer announced Thursday that he’ll break with other party leaders and oppose the payroll tax agreement, a major plank of President Obama’s election-year jobs platform.
Quick on the heels of the House, the Senate has passed legislation to extend a two percent payroll tax cut through the end of the year. The final vote was 60-36 with 30 Rs and 6 Ds bucking their leaders to oppose the package …
Despite so much opposition, it’s interesting to note that the President Obama has actually been rising in the polls since the payroll tax cut was extended. People who don’t want to see Obama serve a second term will be dismayed to learn that the tax cut may actually help him in the polls…
Lawmakers reach a tentative deal on the payroll tax cut extension, and the president’s approval rating edges up.
Obama’s coveted renewal of the payroll tax cut for 160 million workers and jobless benefits for millions more caps a five-month campaign-style drive against reluctant Republicans. Under the bill Congress approved Friday, …
If you enjoyed this post please share it with others by clicking on one of the buttons below.