In the opening days of 2013 congress pushed through legislation to avoid the so called “fiscal cliff” preventing the taxes of the vast majority of Americans from going up, and automatic massive spending cuts from kicking in. The news wasn’t all good, however, as the payroll tax decrease was not extended.
This means everyone’s paychecks would be reduced by 2% effective immediately.
This is a double whammy for me, as it most likely is with many people, since the first of the year is also when the new rates for my medical insurance kicks in. I received my first pay statement of the year over the weekend, and my bi-monthly take home pay has been reduced by $104.08. $20 of that is due to medical insurance premium increases, and $84.08 is due to the payroll tax increase. The failure of the government to extend the payroll tax reduction will be taking 168.16 per month out of my pocket, or a total of 2017.92 for the year.
The reduction was never meant to be permanent, therefore we shouldn’t be surprised that it has been repealed. I’m not surprised, but that doesn’t mean that it doesn’t make a 2% take home pay reduction any less painful for my family’s budget.
Yes, it is a pay cut. Describe it anyway you want, I have 2% less money now in my paycheck than I did last month.
I’ve heard the statement that since the cut was temporary, families shouldn’t have relied on the money and taken that opportunity to save the extra funds. The temporary tax cut was put into effect to help struggling families by putting extra money into their pockets.
If you were in a position to take that extra 2% and put it into savings, then you were not who our legislature had in mind when they put the tax cut into effect.
The timing of the repeal of this tax cut is inexplicable from the perspective of financially struggling families. Unemployment is still high, and I recently read an article that described the economic growth of USA as “controlled recession.”
The same families that were struggling when the tax cut was enacted are still struggling now.
Complain as I may about the increase of the payroll tax back to 6.2%, it’s a reality and my family has to determine how to deal with it. The increase in medical premiums and taxes average out to about $50 less in our weekly budget. We plan to break it down like this:
- Groceries : reduce by $15
- Entertainment : reduce by $15
- Savings : reduce by $20
Thanks to the actions of congress we didn’t fall off the fiscal cliff, and he non-renewal of the payroll tax reduction will affect some people more than others. For my family it’s certainly not a cliff, but more of a financial pothole.
But even potholes can pop a tire or bend an axle, and prevent you from getting to where you want to go.
How has the payroll tax increase affected you? Do you think the government should have extended it until our economy is healthier?