The temporary payroll tax holiday is likely to expire January 1 regardless of what happens with the looming fiscal cliff, the New York Times reported today.
This makes the coming of the New Year an even bigger day for millions of families across America. This year’s payroll tax holiday took the rate from 6.2 percent to 4.2 percent, saving the average family $1,000 a year. And for many, all or most of that money went right back into the marketplace, juicing the economy, which was the holiday’s original aim.
Last year, the White House pushed hard for an extension of the payroll tax cut, launching a campaign on their website in which Americans were asked to share what $40 more in every paycheck would do for them. One example they used came from Pamela living in Fairbanks, Alaska: “$40 is 10 gallons of heating oil when the temperatures in winter hover in the negative numbers for months.”
This time around, the White House and congressional Democrats don’t seem as eager to wage the fight. “I would hope that we would not extend it,” House Minority Leader Nancy Pelosi told reporters last month.
Both Congress and the White House have bigger issues to deal with, namely, the fiscal cliff. As we’ve reported here at The Last Word, come New Years Day, across-the-board spending cuts are set to trigger precisely as the Bush-era tax cuts are set to expire. If nothing is done to prevent these austere events from occurring, the economy could be sent back into recession, according to the CBO.
The payroll tax holiday may seem like small potatoes next to the fiscal cliff, but Economic Policy Institute estimates it’s expiration could kill 0.9 percent of economic output next year, precisely because it is among the most stimulative cuts with the money being quickly spent and injected back into the economy.