Families set to lose $1,000 a year after payroll tax goes up

November 28, 2012

Employee payroll taxes are scheduled to rise nearly 50 percent in 2013 absent action by lawmakers, and there is a growing sense that both parties might be willing to let that happen.

Party leaders have about five weeks to resolve a host of budget issues to avoid going over the "fiscal cliff," the term used to describe more than $600 billion in automatic spending cuts and tax increases scheduled to occur on Jan. 1, 2013.

Much attention has been paid to the potential expiration of Bush-era tax income rates, but the looming expiration of the temporary payroll tax cut has been largely absent from those discussions.

The White House released a report Monday detailing the negative economic impact of allowing the Bush-era tax rates to expire for middle-income Americans. It contained no mention of the payroll tax cut, which by the White House's own estimates affects roughly 160 million Americans and saves the typical middle class family $1,000 per year.

Chairman of the president's Council of Economic Advisers Alan Krueger awkwardly dodged a question about extending the payroll tax cut during a White House press conference on Monday.

"There are many tax provisions that are expiring at the end of the year and the president has said that the payroll tax cut, among others, should be on the table," he told reporters, noting that the cut was intended to be "explicitly temporary."

Treasury Secretary Timothy Geithner was more forthright during his testimony before the Senate Budget Committee earlier this year.

"This has to be a temporary tax cut," he said. "I don't see any reason to consider supporting its extension."

The cut was originally passed in December 2010 as part of a larger deal to temporarily extend all of the Bush-era tax rates. Lawmakers in February agreed to extend it for another year following a contentious showdown between President Barack Obama and House Republicans.

Both sides agreed at the time on the need to extend the provision, which lowered the employee payroll tax rate from 6.2 percent to 4.2 percent, at a cost of around $200 billion.

However, there appears to be far less enthusiasm among lawmakers this time around for a further extension of the lower rate.

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