Payroll Tax Holiday May Not Survive Year's End
The Social Security tax rate is scheduled to revert to 6.2 percent next year, up from the temporary reduction — to 4.2 percent on an employee's first $110,000 in wages — which has been in effect since January 2011.
DAVID GREENE, HOST: And it is time for our next installment in the series that we're calling Fiscal Cliff Notes.
(SOUNDBITE OF TV AND RADIO MONTAGE)
UNIDENTIFIED MAN #1: On January 1st, 2013, there's going to be a massive fiscal cliff of large spending cuts...
UNIDENTIFIED WOMAN: From the painful cuts to the Defense Department, food safety, education...
UNIDENTIFIED MAN #2: The Bush tax cuts, the payroll tax cuts...
UNIDENTIFIED MAN #3: Taxmaggedon.
UNIDENTIFIED MAN #4: It's a cliff.
UNIDENTIFIED MAN #5: Whatever your preferred imagery, it's a really big deal.
GREENE: The drama. It is the Bush-era tax cuts set to expire at the end of this year that get most of the attention from the media, but they are not the only tax breaks set to fall off the fiscal cliff. NPR's Tamara Keith has this look at what's known as the payroll tax holiday.
TAMARA KEITH, BYLINE: If you work, you've probably been getting this tax break. Since January 2011, the government has knocked two percentage points off the payroll tax. As an example, for someone making $50,000 a year, the payroll tax holiday works out to about $20 a week.
STEVE WARNER: We definitely notice it.
KEITH: Steve Warner lives in Winter Haven, Florida, and was on vacation with his family in Washington, D.C. recently.
WARNER: Most of what we use that for is just our day-to-day bills that we have. I mean, it's not like we put it away in savings or anything. It's just more money that we can actually use for gas, food and certain things like that.
KEITH: That's exactly what Congress and the president had in mind when they created the holiday. But it ultimately didn't have the effect many economists had hoped for, because two years in a row, in the spring, gas prices spiked and ate up a lot of that extra spending money. Mark Zandi is chief economist at Moody's Analytics.
MARK ZANDI: It didn't really help support stronger growth, but it certainly helped the economy. Without it, we'd be in a measurably worse place.
KEITH: And now, even as the economy appears to be in a rut, Zandi says there's little appetite to extend the tax holiday - with its $95 billion price tag - one more time. A year ago, Zandi was among those pushing for an extension. Now he says it's time to let it expire, and unless something changes, it will.
CAITLIN MORGAN: We'll miss it. Absolutely.
KEITH: That's Caitlin Morgan, a mother of four boys from Eugene, Oregon. For her family, the extra money was plowed into food and other living expenses. But she seems to accept that the holiday may well be over at the end of the year.
MORGAN: The government needs to prop itself up. It needs to get out of this debt. So, you know, if we need to cut a few corners for that to happen, I'm okay with that.
KEITH: It's one part of the fiscal cliff many economists think can be absorbed - that is, as long as the other 600 billion or so dollars in tax increases and spending cuts don't also hit at the same time. Tamara Keith, NPR News.