It's hard to miss the media hubbub surrounding the impending "fiscal cliff," a term coined to describe the expiration of the Bush tax cuts and sequester in late 2012 and early 2013.
"In all the rhetorical noise about the fiscal cliff, the discussion has focused most heavily on the Bush-era income tax cuts," noted CNNMoney's Jeanne Sahadi in a recent article. "But for workers in that income group, there's an equally if not more valuable tax cut that expires at the end of this year: the payroll tax cut."U.S. payroll tax legislation
is currently in place to boost the economy by giving taxpayers a 2 percent payroll tax cut, reducing the rate from 6.2 percent to 4.2 percent and putting more money in their pockets, in the hope that they'll go out and spend it. According to the Tax Policy Center, if the U.S. payroll legislation
were allowed to expire, this would reduce
workers' paychecks by a collective $115 billion in 2013.What does this mean for individual employees?
Workers making $50,000 would be required to pay an extra $1,000 to fund Social Security, the news source reports. This time last year, the Democratic Party was fiercely lobbying to extend the payroll tax holiday past its then-expiration of December 31, 2011—an effort that was ultimately successful—but many lawmakers who supported the action last year have become lukewarm in their advocacy for another extension. As The New York Times reported several months ago
, House Minority Leader Nancy Pelosi went on record saying she believed the measure should be allowed to expire, and she is far from the only member of her party who feels that way.
However, as CNNMoney reports, recent indications from the White House suggest that an extension—albeit for a smaller rate decrease—may be on the table.
"With the White House clearly holding the trump cards, we think a fiscal cliff deal could include ... a compromise that might raise the payroll tax from 4.2 percent now to something like 5.2 percent—but not all the way back to the previous 6.2 percent rate," said Greg Valliere, chief political strategist at the Potomac Research Group, in a research note quoted by the media outlet.