Even with the 2012 presidential election a little more than two weeks away, politicians and pundits have been paying attention to the looming fiscal cliff. The mix of expiring tax cuts and impending spending cuts could have a disastrous impact on unemployment and the markets.
The tax cuts most frequently cited in discussions of the fiscal cliff are the ones that have formed the heart of the disagreement between Republicans and Democrat — the Bush-era tax cuts. Republicans want to keep them all in place, but Democrats want to eliminate the tax cuts for the richest Americans. Often left out of the discussion is another key tax cut set to expire next year: the payroll tax cut.
But a large number of Americans will see their taxes increase if a deal isn’t cut by the end of the year — 163 million, to be exact. And there doesn’t seem to be much motivation by either party to keep this tax break in place.
Why is that? Well, the payroll tax cut came out of Social Security payroll taxes — meaning it affected how much money was paid into Social Security. That’s an issue near and dear to seniors and groups that advocate on their behalf, including AARP, who opposes any attempt to extend the tax break.
In addition, Republicans felt the cut did little to actually stimulate the economy. A worker making $50,000 a year saved $1,000 a year. That sounds like a lot, until you break it down a little more. That works out to about $19 a week.
Even among the tax-averse Republicans, there seems to be little motivation to keep this cut in place, when a typical worker is only getting dinged $1,000 a year , and even two-income, six-figure families are only getting hit for $4,500.
Still, there are some who support extending the payroll tax break. Former Obama economic adviser Larry Summers has said the economy is too fragile to lower workers’ incomes by eliminating the tax cut.
We’ll have a better idea what the lame duck Congress and Obama — re-elected or not — will do to handle the fiscal cliff in a couple of weeks. Chances are, though, that a payroll tax break will not be on the table.
– Benjamin Nanamaker, InvestorPolitics Editor
The opinions contained in this column are solely those of the writer.
Want to share your own views on money, politics and the 2012 elections? Drop us a line at email@example.com and we might reprint your views in our InvestorPolitics blog! Please include your name, city and state of residence. All letters submitted to this address will be considered for publication.