For the 2011 and 2012 calendar years, taxpayers have enjoyed the benefits of U.S. payroll tax legislation
that reduced the payroll tax to 4.2 percent from 6.2 percent—a decrease that translated into the average family's tax bill being cut by nearly $1,000.
As the New York Times reported earlier this month, the chances of the U.S. payroll legislation
being extended past the end of the year are unlikely for several reasons. Specifically, Treasury secretary Timothy Geithner stressed its temporary nature in front of the Senate Budget Committee, the White House has not indicated any plans to pursue a continuance and House Minority Leader Nancy Pelosi said she believed the tax cut should be allowed to expire, the news source reported
.Economic adviser supports payroll tax holiday extension
Lawrence Summers, former director of the National Economic Council under President Barack Obama, recently spoke out in support of an extension, citing benefits of the reduced rate, such as stimulating consumer spending and boosting the jobs market.
"This is not the right moment to repeal the payroll tax cut," Summers told the Center for American Progress think tank. "It is $120 billion that enables cash-strapped families to spend money on what they need and provides incentives certainly for small businesses and perhaps beyond."
If the reduced payroll tax rate is not extended into 2013, it will expire at the same time as a battalion of Bush-era tax cuts, a situation commonly referred to as the "fiscal cliff."
"It is essential that we avoid falling over that cliff," Summers said, as quoted by Reuters
. Echoing other business experts, policymakers and think tanks—including the nonpartisan Congressional Budget Office—Summers warned that the combination of reduced government spending and higher taxes could have a dire effect on the country's economic recovery efforts, and might even result in another recession. According to Politico
, Michael Feroli, the chief U.S. economist for JPMorgan Chase, authored a report earlier this year that forecasted the nation's economy would take a $125 billion hit next year if the tax break were allowed to expire.