Payroll Tax 2013: Higher Taxes and Smaller Paychecks Slap the Middle Class


By now, anyone receiving a paycheck has probably noticed a change in his or her take home pay. That 2% difference is a result of the expiration of the payroll tax reduction of 2010. With all the attention focused on the fiscal cliff and whether or not to extend the Bush tax cuts, no one seemed to realize that this reduction was about to end. Since pointing fingers is what our political system has become, everyone wants to know whom to blame for the tax hike. As the president, Obama has shouldered the blunt of the blame but the evidence suggests that no matter who had won in November the reduction would have expired. Americans have no one to blame for the higher tax, but maybe should shoulder some blame themselves for not staying informed and preparing for the likelihood lower take home pay would happen.

In December 2010, in an effort to spur the economy and consumer spending Congress passed a temporary reduction of the payroll tax from 6.2% down to 4.2%. Now that the reduction has expired, it will cost $822 increased taxes for households earning between $50,000 and $75,000 per year. While some will argue that this reduction will impact household savings, as they cut saving to maintain their lifestyle, I am not sure that is the case. While the savings rate did increase at the onset of the reduction, it has been in a steady decline since them. Americans used the credit for what it was intended, spending.

Now that people have been seeing the smaller paychecks the blame has been focused on President Obama. He campaigned on not raising taxes on the middle class so how could he allow this to happen? If Romney were the president this wouldn't have happened, right? The fact is the tax plans of both President Obama and Mitt Romney both called for the end of the payroll tax reduction. No matter who had won in November, everyone's paycheck would still be smaller. If someone wanted to cast blame, they could attempt to blame Republicans who fought extending the reduction back in 2011. However, as the extension grew closer to expiring neither party showed much interest in extending or making the reduction permanent making it hard to blame either side.

Though ultimately Congress was responsible for everyone having higher taxes, maybe we should look in the mirror if we are looking for someone to blame. Neither candidate campaigned on extending the credit so no one should have had any expectation it would happen. The focus of the campaign was on the Bush tax rates, not the Obama tax rates so the payroll reduction was not included. So why did more Americans not know this was going to happen? Since it wasn't a focal point of the campaign it got very little, if any, discussion on the airwaves. As a result Americans were clueless on what was about to happen.

With the reduction permanently gone, consumers are reacting to what it means for their spending during these uncertain times. Since no matter whom we voted into office was going to prevent this, should we have been better prepared for it? Instead of relying so much on the news media to keep us informed on what is going on, perhaps we should pay more attention to the details and prepare accordingly. Had everyone paid attention to what tax plans were being proposed maybe they could have been better prepared. No one is to blame for our lower paychecks, but maybe the blame lies with us for not knowing in advance this would happen and being adequately prepared for it.