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October 5, 2015

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Payroll tax hike to take $1,000 bite out of average worker’s annual pay

Keeping hard-earned money in the pockets of workers, President Barack Obama has been saying, is why it’s imperative Congress makes sure income tax rates don’t rise for the middle class.

“The last thing folks like the folks up here on this stage can afford right now is to pay an extra $2,000 in taxes next year,” Obama said Monday, flanked by about a dozen representatives of the middle class at the White House.

But one tax lawmakers aren’t discussing — the payroll tax — is set to increase at midnight, costing the average taxpayer about $1,000 a year.

Congress has been locked in a fierce debate over rising income tax rates and scheduled government spending cuts, known together as the “fiscal cliff.”

The country will be going over the so-called cliff at midnight tonight, but Congress has a few weeks of wiggle room before workers start seeing larger deductions from their paychecks.

Nowhere in the midst of the debate, however, have lawmakers been arguing over payroll tax cuts, which are set to expire at midnight and stand little to no chance of being resuscitated.

Payroll taxes are a flat tax rate that goes to fund Social Security and Medicare.

Two years ago, lawmakers included a 2 percentage point reduction in the payroll tax rate as part of a larger, two-year tax bill that extended Bush-era tax cuts for everyone.

Before the 2010 deal, payroll taxes were 6.2 percent, deducted from the first $106,800 of workers’ paychecks. Inflation raised that ceiling to $110,100 in 2012.

But for the last two years, the payroll tax rate has been 4.2 percent.

Last December, the White House and Democrats staged a campaign to preserve the expiring payroll tax cut, asking individuals to detail what the average $40-per-paycheck tax hike would mean to them. Over the course of a year, that adds up to about $1,000 lost to taxes.

Congress extended the payroll tax cut for another year.

This year, however, there is no similar campaign under way. The payroll tax cut has not been an element of any of the proposals to avert the fiscal cliff.

In fact, nobody is even talking about the payroll tax cut, and there appears to be a tacit acceptance that it will be expiring, whether a deal is struck or not.

Republicans and Democrats have been sparring over the extent to which income tax rate cuts should be extended.

Democrats wanted to extend Bush-era tax cuts for incomes up to $250,000 and no further, while Republicans wanted to extend current rates at all income levels permanently. Earlier on Monday, Senate Minority Leader Mitch McConnell and Vice President Joe Biden seemed to be closing in on a compromise that would extend the lower tax rates up to $400,000 for individual tax filers and $450,000 for couples.

A final deal would likely also include an extension of unemployment benefits, energy tax credits and tuition benefits that were extended under the controversial stimulus bill, according to the president and aides for McConnell.

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