Payroll Tax Holiday Eludes Many Public Employees

The payroll tax holiday in President Obama's tax compromise is designed to give Americans a little more money in their monthly paychecks. The idea is that they will spend that money and stimulate the economy. But more than six million public employees won't get this tax break.

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STEVE INSKEEP, host:

As we've reported elsewhere today, the House has joined the Senate in passing a broad tax-cutting plan. The president is expected to sign that package today. The provisions included temporary reduction in the Social Security payroll tax paid by many millions of Americans. They'll see extra money in their paychecks next year.

But as NPR's Tamara Keith reports, many public employees will not see a penny.

TAMARA KEITH: That's because many government workers don't contribute to Social Security. Instead, they pay into state, local, and federal pension funds.

Pamela Brashear teaches fifth and sixth grade science and social studies in Perry County, Kentucky.

Ms. PAMELA BRASHEAR (Teacher): I did think I would get something because it was federal income. Then I found out it was Social Security and I don't pay into Social Security, so I am going to end up losing money.

KEITH: Losing money, because like most middle income Americans, this year she got the $400 Making Work Pay tax credit. As part of the tax compromise, that goes away and is replaced by the payroll tax holiday, which won't help her or six million other public employees.

Mr. ROBERTON WILLIAMS (Senior Fellow, Tax Policy Center): They go from something to nothing.

KEITH: Roberton Williams is a senior fellow at the non-partisan Tax Policy Center. He says leaving those workers out wasn't any sort of malicious plan. Trimming the Social Security tax is just a simple way to reach a ton of people.

Mr. WILLIAMS: There are about 155 million taxpayers in the country. So six million is about four percent of that. For them it really matters. In the larger scheme of things, it's not a big deal.

KEITH: In terms of economic impact, he says the payroll tax reduction is set to put $120 billion in taxpayer's hands next year. And that's a lot of money.

Tamara Keith, NPR News, Washington.

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