Payroll Tax Cut Expires This Year

Last updated on October 22, 2012

Payroll tax cut that had been giving a breather to as many as 163 million workers in 2011 and 2012 will expire this year. This bad news is not being brought up or discussed by the politicos because neither party looks to extend the payroll tax cut.

The payroll tax cut is being financed with borrowed money because the deficit caused due to the cut is not being leveled through the cutting of spending or raising of other taxes. This creates problems of extending the cut.

Moreover, the cut did not benefit the economy as much as the Congress had expected it to. Even though the Democrats are defending the tax cut saying that it helped sustain the economy, they are not committing to extending it.

It is the middle-class income group that benefitted the most from the cut. An average worker who earned $50,000 a year saved $1000 annually during 2011 and 2012. With the cut expiring this year, it would mean fewer saving and less spending for millions of workers.

President Obama had pushed for the payroll tax in 2010 when economists were divided over how much it will benefit the economy. The cut was effective only for 2010, but President Obama and Democrats extended it for another year. This year, however, Obama did not include the cut in his budget proposal, leaving many to believe that he and his party will not push for it again.

Taxpayers may feel the pinch of paying more taxes from 2013 if the miracle of extension of payroll tax cut does not happen.