Payroll Tax Cut To Come Up After Thanksgiving
President Barack Obama said on Tuesday U.S. lawmakers would have a chance to vote again next week to extend a payroll tax cut which, he said, would hurt the economy and employment if it were not extended into 2012.
“In the spirit of Thanksgiving, we are going to give them another chance,” Obama said, referring to lawmakers in Congress and Thursday’s U.S. Thanksgiving holiday.
Once the Turkey coma wears off, Congress will take up the payroll tax cut and an extension of unemployment insurance.
Both are scheduled to run out at the end of the year. Estimated price tag for them is in the neighborhood of $200 billion. “Next week they are going to get to take a simple vote. If they vote no again the typical family’s taxes will go up $1,000 next year.”
While the details were still being worked on, Democrats could attempt to pay for extending the tax cut by raising taxes on the wealthy. Republicans have blocked that idea in the past and likely would do so again.
In that event, the payroll tax cut extension could come up again in an end-of-year, catch-all bill to fund many government programs through next September, and the end of the current fiscal year.
The payroll tax cut comes as part of the federal tax cut extensions that address the Bush tax cuts which were ending. To make up for the expiring Making Work Pay tax credit, the 2011 payroll tax cut reduces the amount you contribute to Social Security by 2% next year. It won’t impact your federal income tax bracket but it will increase your paycheck on the first $106,800 you earn.
The graph below illustrates the annual effect of this federal payroll tax cut as opposed to the Making Work Pay credit.