Payroll taxes are set to rise

Capitol Hill- Looks like whether or not we plunge off the fiscal cliff won’t matter for some tax hikes. It looks as if come hell or high water payroll taxes are set to rise once again.

The payroll tax cut, which has been in effect for the past two years will expire this forthcoming Monday. No talks are underway to even begin thinking about modifying this or changing the fate of this expiring tax cut. On a similar note the fiscal cliff is set to begin next week as well. Unfortunately it looks like no negotiations will be had to resolve this issue and 500 billion in combined tax increases and spending cuts will take into effect next week.

This expiration will result in every single worker seeing their paychecks shrink by over 1,000 dollars next year for individuals making 50,000 a year. The rate will go from 4.2% to 6.2% and benefit Social Security.

These tax increases will take this money out of the economy and have a certain impact on growth of the US economy next  year. This will take out of the economy 113 billion dollars or roughly .7% of the annual US output. This will have some impact on the US economy next year seeing as how we have seen sluggish growth for the past few quarters of around 2%.

This tax growth may come as a shock to middle income families that rely on these precious dollars to keep afloat in their every day lives. Especially when their president has committed to no tax increases on the middle class. Instead it seems like the focus has shifted to the much larger issue of individual income tax rates rather than such trivial things as the payroll taxes.

“They certainly weren’t too keen about publicizing that a lot of money was about to disappear,” said Nigel Gault, chief U.S. economist at IHS. “It will be a surprise to a lot of people that they’ll have less to spend and they’ll have to adjust.”

It seems as if families are already taking into consideration these cuts as individual families this year spent on average 100$ dollars less than in previous years. This is quite strange behavior seeing as how we are supposedly out of the recession.

These families will be in for a surprise that will take into effect almost immediately. Most middle class families have a hard time paying the bills and live paycheck to paycheck. It is yet to be discovered as to how these tax increases are set to effect these folks.

According to a recent survey 2 in 5 houses live paycheck to paycheck. This is much higher than in recent years according to the Consumer Federation of America and the Certified Financial Planner Board of Standards.

These pay cuts are also expected to drop the savings rate of individuals because of the decrease of money into the economy.

Originally this payroll tax cut was put into effect in order to stimulate the economy in 2010. In recent times 2001 and 2008 the government actually sent checks to individuals in order to stint a recession.

Only time will tell whether or not this needed tax break will fade otu of existence with minimal effects to the economy or if the US government will slip back into a recession because of the cut of this sorely needed tax break.