The Expiration of the Payroll Tax Cut is Killing Us

From the WSJ today:

Less take-home pay is causing 45.7% of consumers to curtail spending, according to a survey released on Thursday by the National Retail Federation, a trade group. A quarter of consumers are delaying big-ticket purchases, a third are reducing restaurant visits, and about a fifth of shoppers are spending less on groceries, it said.

U.S. retail sales in January rose at their smallest rate in three months, estimates the U.S. Commerce Department, a result said analysts of the effect the higher payroll tax was having on consumer spending.

The Fiscal Cliff debate was focused on the rising income taxes, but it should have been framed around the expiration of the payroll tax. For some reason, Democrats and Republicans both generally agreed that the payroll tax cut was due to expire. The President’s first proposal included a year-long extension of it, but after that, he dropped it. There just wasn’t any interest in renewing it.

Outside of the capital, it wasn’t much better. The mainstream media mostly ignored the issue. After all, it’s a lot more fun to cover a major battle over income tax rates than to cover bipartisan agreement on a rising payroll tax. But we reap what we sow and now both consumers and businesses are feeling the pain.

BTW, my previous posts pleading with Congress to extend the payroll tax cut had more on its expected effects: here and here.


The last time I wrote an article asking for the President to extend the payroll tax cuts I didn’t use all caps in my title. So here’s try #2. I’m also angrier this time.

Here’s the President today talking about a potential deal on the Fiscal Cliff:

Here are the two lines that stuck out (and infuriated me):

Every American’s paycheck will get considerably smaller.


The housing market is recovering, but that could be impacted if folks are seeing smaller paychecks.

Guess what is immediately going to hit the middle class the hardest?

The expiration  of the payroll tax cut.

I’ve supported the President against other liberals in his desire to compromise, but he never mentions the payroll tax cut. The Bush Tax Cuts don’t have an effect for months – until tax filing season. The sequester happens slowly over time. We won’t hit the debt ceiling for another month. But the end of the payroll tax cut is going to hit middle class families right away. That’s what’s going to hurt their paychecks.

The President is saying that he wants to avoid decreasing every American’s paycheck. He’s demanding just a small deal and at worst, just an extension of the Bush tax cuts for those making less than $250,000 and an extension of unemployment benefits. That’s what Obama is saying Congress needs to do to prevent every American’s paycheck from taking a hit.

He’s wrong. That still leaves a big weekly hole in every American’s paycheck as the payroll tax rises from 4.2% to 6.2%.

Matt Yglesias mentioned this in a post today as well. The parts of the fiscal cliff that have the worst immediate consequences aren’t even being mentioned.

It’s a major political failure. But it’s also a media failure? Hello MSM, where have you been? Do most Americans even know that the payroll tax is going up?

The entire thing is infuriating, but nothing is going to change in the next few days so I might as well get used to it.