The Union Recorder

Top Stories

January 11, 2013

Here's why your paycheck just shrank

WASHINGTON — Many Americans just received their first paycheck of 2013. That sound you hear is the collective "What the . . ." they have emitted upon looking at their pay stub.

For all the self-congratulatory back-patting from the White House and Congress on the deal that averted the "fiscal cliff" of tax increases — the deal locked in the George W. Bush-era tax cuts for households making under $450,000 — they tended not to mention what the deal did, or rather didn't do, on the payroll tax. A 2 percentage point reduction in the Social Security tax, which hits all American workers, had been enacted at the end of 2010. In the fiscal cliff deal, Congress and President Barack Obama neither extended it further nor agreed on any other policies that might have the similar effect of leaving more money in workers' pockets.

The numbers, for anybody who hasn't checked their paycheck yet (or won't get paid in 2013 until later in the month): For someone who makes the U.S. average for private sector workers of $818.69 a week and is paid every other week, that adds up to a reduction of $32.75 in each paycheck. For higher earners, anyone making over $113,700 annually, each bi-weekly paycheck will decline by $87.46.

The increase in payroll taxes has now gone from being an abstraction in Washington policy debates that politicians prefer not to talk about to being something very real.

The big question for the economy as 2013 gets underway is how America will react to their smaller paychecks. It is uncharted waters in many way: For most of the last two decades, taxes have been steadily falling. There is not much evidence for just how much Americans will pare back in response to tighter times and a higher tax burden.

One place to look for evidence is what happened when the payroll tax cut was implemented at the start of 2011. In the first six months of the year, personal consumption spending rose 2.2 percent, though that coincided with a spike in fuel prices tied to unrest in the Middle East, so when adjusted for inflation consumption spending rose only 0.6 percent. (In a way, it turned out to be lucky timing; in effect, the payroll tax break offset the economic drag that came from what turned out to be a temporary bump in oil prices.)

Text Only
Top Stories
Poll
AP Video
Raw: Obama Tours Gyeongbok Palace Swimmer Michael Phelps Back in Competition Raw: Obama Lays Korean War Memorial Wreath Obama Leads Naturalization Ceremony in Seoul Calif. School Bus Crash Hurts Driver, 11 Kids Country Club for Exotic Cars Little Science Behind 'Pollen Vortex' Prediction US Proposes Pay-for-priority Internet Standards Wife Mourns Chicago Doctor Killed in Afghanistan FDA Proposes Regulations on E-cigarettes Kerry Warns Russia of Expensive New Sanctions Mideast Peace Talks Stall on Hamas Deal Cody Walker Remembers His Late Brother Paul Grieving South Korea Puts Up Yellow Ribbons Raw: Kerry Brings His Dog to Work Raw: Girls Survive Car Crash Into Their Bedroom Three U.S. Doctors Killed by Afghan Security Yankees' Pineda Suspended 10 Games for Pine Tar Colleagues Mourn Death of Doctors in Afghanistan Ukraine Launches Operation Against Insurgents
Facebook
Twitter Updates
Follow us on twitter
Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.
Stocks
NDN Video
Grumpy Cat Not Impressed at "Idol" Is Shaquille O'Neal the World's Best Ex-Athlete? Raw: Obama Plays Soccer With Japanese Robot Behind The Tanlines Jersey Strong Part 2 BASE Jumpers Set World Record Screaming 2-year-old gets psyched at Penguins game Pineda: Put pine tar because he didn't want to hit anyone Beyonce on Her Biggest Influence Michael Strahan's First Day on "GMA" Clerk catches on fire after man throws Molotov Cocktail into Brooklyn store Amazon's Deal With HBO Leapfrogs Streaming Rivals Stephen Colbert Tells David Letterman His Plan for 'Late Show' Georgetown police officer filmed tripping students Viral: It's Not Pitbull - It's Amy Poehler! Recycling Highlights for Earth Day Lupita Nyong'o Named People's 'Most Beautiful' Peeps Launched into Outer Space NYPD's Twitter Request For Photos Backfires New HBO Go Commercials Capture Awkward Family TV Watching Raw: Leopard Bites Man in India