Middle Class Payroll Tax Relief Act

The Middle Class Payroll Tax Relief Act, introduced by Rep. Dan Maffei, temporarily extends the two percent payroll tax cut through the end of 2013. This change would benefit over 160 million workers in 2013.i Background At the end of 2010, Congress passed a temporary reduction in Social Security payroll taxes, which was later extended through the end of 2012. Social Security is financed through payroll taxes, which includes contributions from both employers and employees. Employees normally contribute 6.2 percent of their earnings on income up to the Social Security taxable income cap, which is $113,700 for 2013. The payroll tax cut reduced the Social Security contributions by two percent, to 4.2 percent for employees and 10.4 percent for self-employed individuals. The Social Security trust funds did not lose income during this time; a transfer of general revenue was made to ensure the trust funds did not suffer lost income during this time. Economic Impact The payroll tax cut has had real results for American families. An average middle class family with $50,000 in income saved $1,000 a year while the cut was in effect. That is an extra $42 in every paycheck for working families. In New Yorks 24th Congressional district, the median family income is $51,724, meaning most Central New York families in this district would save about $1,034 a year. Across the district, families in Cayuga County would save $1,000, families in Onondaga County would save $1,060, families in Oswego County would save $940, and families in Wayne County would save $1,080 a year.

According Center on Budget and Policy Priorities, 10.1 million hardworking New Yorkers would benefit from the payroll tax cut extension.ii
Last year, according to data compiled by the Joint Economic Committeeiii: More than half the households benefitting from the tax cut earned less than $100,000, and 85 percent of households benefitting from the tax cut earned less than $200,000. The payroll tax cut is estimated to have grown the economy by half a percentage point in 2012 and is credited with saving or creating an estimated 400,000 jobs. The jobs supported by the payroll tax cut contributed at least $1 billion in additional Social Security payroll taxes to the Social Security Trust Fund through tax withholding.

Other economists agree that extending the payroll tax cut benefits our economy: The non-partisan Congressional Budget Office (CBO) estimated that the two percent reduction of payroll taxes would raise economic output cumulatively through 2013 by as much as $0.90 per dollar spent, a nearly dollar for dollar investment in our economy.iv Recent analysis indicates that workers spent their extra income at a much higher rate than they initially intended, further driving economic output.v The economist Mark Zandi estimates that extending the payroll tax cut through 2013 would increase GDP by $100 billion.vi Goldman Sachs estimates that failure to extend the payroll tax cut would slow economic growth by 0.6 percent.vii

Conclusion Our economy is still recovering, as evidenced by the recent news that our GDP contracted by 0.1 percent in the final quarter of 2012, the worst numbers since we started the climb out of the recession in 2009.viii The unemployment rate remains stubbornly high at 7.9 percent nationallyix and 8.5 percent in the Syracuse area.x Our economy and middle class families need this temporary relief continued one more year.

Citations:
i

150.2 million employees, 17.4 million self-employed workers, 160.6 million total workers affected. http://www.socialsecurity.gov/legislation/2013factsheet.pdf ii http://www.cbpp.org/cms/?fa=view&id=3572 iii http://www.jec.senate.gov/public/?a=Files.Serve&File_id=e346b85f-6b54-47d7-94cb-f4efeea6b7c4 iv http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-15-Outlook_Stimulus_Testimony.pdf v http://www.newyorkfed.org/research/staff_reports/sr592.pdf vi http://www.economy.com/dismal/article_free.asp?cid=232471&src=mark-zandi vii http://www.businessinsider.com/goldman-on-fiscal-retrenchment-2012-10 viii http://www.nytimes.com/2013/01/31/business/economy/us-economy-unexpectedly-contracted-in-fourth-quarter.html?hp&_r=0 ix http://bls.gov/news.release/empsit.nr0.htm x http://bls.gov/eag/eag.ny_syracuse_msa.htm