I hear the brouhaha all around that the Congress allowed the payroll to be raised by 2% on January 1, 2013, thus lowering the paychecks of all American workers.
Those same voices not long ago assured me that allowing the tax rate reductions on the higher earners to expire and rise was not a tax increase but was simply allowing the tax rate to return to where it should be.
Seems a little confusing.
A 2 percentage point reduction in the Social Security tax, which hits all American workers, had been enacted at the end of 2010. In the fiscal cliff deal, Congress and President Barack Obama neither extended it further nor agreed on any other policies that might have the similar effect of leaving more money in workers’ pockets.
The increase in payroll taxes has now gone from being an abstraction in Washington policy debates that politicians prefer not to talk about to being something very real.
It was always clear that the payroll tax holiday would have to disappear eventually; keeping it on would endanger the finances of the Social Security system.