Wallets Could Benefit From Payroll Tax Change
: John, good morning.
JOHN YDSTIE: Hi, Steve.
: OK. They call it a payroll tax holiday, which sounds festive. What is it?
YDSTIE: Yeah. Well, what they're going to do is cut by two percent the amount of payroll tax paid by workers. You remember that workers pay 6.2 percent of their income, up to $106,800, in for Social Security. Their employer pays about the same amount - or exactly the same amount. And the employers - or the employee's portion is going to be reduced by two percent. So it will mean people will be able to have more money in their pockets.
: I don't want to get too lost in the numbers here. You mentioned two percent. That sounds small, but I was just thinking about the series we did on this program earlier this year about people in the middle of the income range in the United States. The average family - the median family makes about $50,000 per year. That'd be like an extra $1,000 for them.
YDSTIE: They'd have an extra $1,000 in their pocket. If you made $100,000, it would be 2,000. It's capped at $106,000. So you couldn't get more than about $2,100.
: OK. And it's not like you're going to get $1,000 all at once. It'd be over the course of the year. Why is this...
YDSTIE: Right. It's over the course of the year, right.
: Why does this make sense?
YDSTIE: Now, it's also sort of taking the place of the making-work-pay tax cut that was in the stimulus package that's going away. That was a $400 per worker tax break. And that's going away. So this will replace it.
: Does it really then get more money into the economy?
YDSTIE: Well, you know, that's the question. Are people going to spend the money? Now, it's likely that this will, you know, more likely that this will be spent than a big broad tax cut, because this is aimed at people who make less than $106,000. And middle income workers, lower income workers, tend to spend more of their paychecks, because they just need to to get the basics.
: John, one quick question here. We're talking about reducing Social Security taxes. Isn't there a long term problem with Social Security having too little money?
YDSTIE: Well, absolutely true. And we've heard a lot about the deficit commission recently and their efforts to try to fix Social Security and either raise the payroll tax or cut some benefits. And there are a lot of plans out there to do that. This will certainly be a hit to Social Security. There's no - they're not talking about trying to make it up later. It'll - essentially the government will have to borrow to replace this. So this will become part of the problem.
: OK. John, thanks very much.
YDSTIE: You're welcome, Steve.
: That's NPR's John Ydstie with details of a tax deal involving President Obama and congressional Republicans.
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