Americans have read and heard much about how Congress and President Obama avoided the fiscal cliff, preventing big tax increases for 98 percent of Americans. Almost ignored was the 2 percent pay cut that began Tuesday for 160 million Americans – half the nation.
Much of the news focused on avoiding the automatic $110 billion in budget cuts this year, a move many economists feared could trigger a new recession. But there was barely a mention that the 2 percent increase in Social Security payroll taxes will take $115 billion out of the economy.
No one, it seems, argued to continue the 2 percent payroll tax cut for a third year. The cut that took effect for 2011 arguably never should have been made, and Americans knew it was temporary. But as the economy continued to stagger, Congress renewed it for 2012, and there was talk not that many days ago of extending it again. But in the end, neither side pushed for it – or for a more responsible alternative, such as phasing it back in with a 1 percent increase this year and another in 2014. At least working Americans could have planned for it.
The payroll tax hike falls heaviest on the working poor, those least able to afford it. For a Hoosier family earning the median income of $48,393, the 2 percent tax hike will mean $968 less to spend this year on groceries, clothes, school book rental, prescription drugs and a host of other needs and wants that ripples through the economy. That’s $80 a month less – more than enough to pay a City Utilities bill, enough for a modest cell-phone plan, enough to help pay down credit card bills.
The working poor make less than the median, but even workers making $25,000 a year and paid biweekly will see their paychecks drop by $19.23. Some of those same workers may have seen hikes in insurance premiums as well, with the payroll tax restoration just another kick in the gut to absorb.
While politicians may argue that only couples making more than $450,000 a year will pay higher taxes, the truth is that everyone who draws a paycheck will pay more. The tax, however, does not affect non-payroll income – including dividends and capital gains.
Happy New Year.
Granted, probably no one was completely pleased with the measure Congress passed to extend tax cuts for all but the 2 percent of richest Americans. Republicans, in particular, were unhappy that the agreement did not include substantial budget cuts.
But the budget cuts will come up soon. And no matter how they try to spin it, a vote this week against the package was a vote against tax relief for 98 percent of Americans.
Among those whose votes – if prevailing – would have raised taxes even more for everyone: U.S. Reps. Marlin Stutzman and, in his last congressional vote, Mike Pence.