Higher Payroll Taxes Are Not New

Last updated on January 16, 2012

Starting in 2013, most taxpayers will begin to pay the original rate of Social Security taxes, at 6.2 percent. Accustomed to paying 4.2 percent from 2001 until 2012, taxpayers are not taking well to the tax rate bouncing back to 6.2 percent. The reaction of taxpayers was predictable because in 2010 when the payroll tax cut was to expire, the Obama administration extended it for an additional two years. It was a relief in a bleak economy.

It is true that higher payroll taxes affects all taxpayers, but the tax increase is in focus because of the fiscal cliff that came at the end of 2012. Taxpayers are now worried about having to pay higher taxes. These higher payroll taxes have hit at a time when everyone is nervous about a sluggish economy slow to catch its footing. No wonder there is a reaction.

In 2001, the Bush administration enacted temporary cuts in payroll taxes to help fund Social Security and aid economic growth. In 2010, the cut was extended after mutual consent. In view of the fiscal cliff in 2012, the White House proposed extending the cut, but faced opposition from a Republican-controlled House of Representatives.

The increased payroll taxes might not seem huge, but they have made taxpayers think about their spending and saving habits. People are thinking about ways to cut down on spending because now they will be getting a lighter paycheck. It remains to be seen how public outcry against higher payroll taxes affects the country’s politics and helps the economy.