Psst... taxes go up in 2013 for 163 million workers

9:29 AM, Oct 22, 2012   |    comments
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WASHINGTON -- President Barack Obama isn't talking about it and neither is Mitt Romney. But come January, 163 million workers can expect to feel the pinch of a big tax increase regardless of who wins the election.

A temporary reduction in Social Security payroll taxes is due to expire at the end of the year. Neither Obama nor Romney has proposed an extension. Politicians from both parties say they are concerned that it threatens the independent revenue stream that funds Social Security.

They are backed by advocates for seniors, including AARP, who adamantly oppose any extension.

"The payroll tax holiday was intended to be temporary and there is strong bipartisan support to let that tax provision expire," said Sen. Orrin Hatch of Utah, top Republican on the Senate Finance Committee.

"I think there's a growing consensus that Congress and the president can't continue to divert such a critical revenue stream from Social Security," said Rep. Kevin Brady of Texas, a senior Republican on the tax-writing House Ways and Means Committee.

How the tax works

Social Security is funded by a 12.4 percent tax on wages up to $110,100, rising to $113,700 in 2013. Half is paid by employers and the other half is paid by workers. For 2011 and 2012, Congress and Obama cut the share paid by workers from 6.2 to 4.2 percent.

A worker making $50,000 saved $1,000 a year, or a little more than $19 a week.

The beauty of the tax cut is that is shows up in weekly paychecks, giving workers more money to spend or save. The downside is that some workers may not notice a $19-a-week increase in pay, making them unlikely to credit the politicians who made it happen.

Under the law, Congress is reimbursing Social Security for the lost revenue, estimated at $103 billion in 2011 and $112 billion in 2012. But Congress didn't cut spending or raise other taxes to offset the lost revenue, so the payroll tax cut is being financed with borrowed money, adding to the national debt.

Democrats say it helped prop up the economy during a rough stretch while providing what amounted to a 2 percent pay increase to millions of middle-income workers. But they, too, are concerned about maintaining Social Security's source of revenue.

"I think people realize that was a temporary thing," said Sen. Mark Begich, D-Alaska.

Spending boosted

Obama pushed for the tax cut in late 2010 as a way to increase workers' take-home pay to help boost consumer spending and provide a spark for the economy. Many economists said it probably helped increase consumer spending but there was no consensus on the magnitude.

The initial tax cut was for only a year, and many Republicans in Congress wanted to let it lapse at the end of 2011. But Obama and Democratic lawmakers successfully fought to extend it through 2012.

Obama, however, didn't include the tax cut in his 2013 budget proposal, and Treasury Secretary Timothy Geithner told Congress this year that he saw no reason to extend it again.

Romney's campaign hammers Obama almost every day for proposing to let Bush-era tax cuts expire for individuals making more than $200,000 and married couples making more than $250,000. But Romney's tax plan would let the payroll tax cut expire, an issue he doesn't mention on the stump.

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