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The Senate-backed “fiscal cliff” bill that managed to pass both chambers last week failed to reinstate the payroll tax holiday, TheBlaze reported at the time.
Consequently, everyone will see their taxes go up. In fact, as Brad Plummer of the Washington Post points out, the payroll tax hike (which is technically returning the tax to its previous rate of 6.2 percent, up from its temporary rate of 4.2 percent), will completely wipe out an entire year’s worth of wage gains:
We look at average weekly earnings of all employees on private non-farm payrolls: $818.69 in December. The 2% payroll tax increase clips $16.37 a week from take-home pay. … That’s the equivalent of losing all the 2012 gain in weekly earnings in one month.
Obviously, with shrinking paychecks and less take-home pay, Americans are expected to spend a whole lot less this year. This could put a serious hurt on an already struggling U.S. economy.
“The New York Fed’s survey data found that the payroll tax cut has been a particularly efficient form of stimulus over the past two years — Americans reported spending between 28 and 43 percent of the savings, far more than they have for previous tax cuts,” Plummer explains.
“And most workers expect to cut back on spending significantly now that the payroll tax cut is vanishing. The average household making $50,000 a year will see its payroll taxes rise about $1,000 this year,” he adds.
The typical household is expected to reduce spending by about $710 this year to counter the effects of the expiration of the payroll tax holiday, the New York Fed’s survey data shows.
Whether or not Americans will actually cut back on their spending due to the tax hike is uncertain. What we do know, however, is that a) everyone’s taxes are going up and b) the increase has done away with an entire year’s worth of wage gains.
Follow Becket Adams (@BecketAdams) on Twitter
Featured image courtesy Getty Images.
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