A big tax increase is looming
A year ago, the big worry in Washington was whether Congress would before their end-of-year expiration. Failure would have meant a huge tax hike.
This year the question is whether the super committee will produce a budget plan before its Thanksgiving deadline. Failure could mean huge spending cuts.
Meanwhile, nobody seems worried about the $110 billion tax increase on workers set to hit on January 1.
Last December鈥檚 tax bill cut the worker鈥檚 share of the that funds Social Security by 2 percentage points鈥攁n average of just over . That money surely boosted consumer purchases as it dribbled into workers鈥� paychecks throughout the year. But six weeks from now it disappears like Cinderella鈥檚 coach at midnight.
Two months ago the president proposed to boost the tax cut by half for 2012鈥攖o 3.1 percent鈥攁s part of his . We know how far that鈥檚 gotten. Since Senate Republicans basically tabled the bill last month, Democrats have reintroduced it piecemeal. They failed repeatedly until last week when the Senate passed a handful of jobs subsidies for veterans, a political no-brainer right before Veterans鈥� Day.
Maybe Democrats plan to bring up the payroll tax cut after the super committee fails to offer a budget plan next week. Maybe they鈥檒l wait longer to build pressure as the year winds down. I have no idea鈥擨鈥檓 just an economist.
What I do know is that if Congress does nothing, biweekly paychecks will shrink in January by an average of about $35, just as the holiday bills arrive. That surely won鈥檛 help consumer spending.
If Congress does extend the larger payroll tax cut through 2012, the average worker will keep that $35 plus an additional $20 or so every two weeks. That鈥檚 not a lot but over the year, it adds up to an extra $170 billion of potential spending.
I suspect that Congress will go down to the deadline again this year as political calculations determine what happens when. In the end, we鈥檒l have another year of reduced payroll taxes, maybe the same as this year, maybe more. If that鈥檚 all we鈥檙e going to get, the least the good folks on Capitol Hill can do is deliver well ahead of the holidays.
