In Tax Deal, Many Public Employees Will Pay More

[SOS]

Source: The New York Times

More bad news for government workers.

At a time when state and local governments across the country are imposing furloughs and layoffs, and President Obama has frozen pay for federal employees, it turns out that one of the few groups to face higher federal taxes next year may be public sector employees.

The proposal to extend the Bush-era tax breaks unveiled by Mr. Obama this week would offer a tax cut for most Americans. The deal would end the Making Work Pay credit, which gave a tax reduction of up to $400 to workers with low and middle incomes. That credit will be replaced by a 2 percent decrease in the payroll tax for Social Security for people of all incomes.

But more than six million federal, state and local government employees do not pay into Social Security at all. Instead, they pay into public pension systems. So if the agreed proposal becomes law, such employees will lose the $400 credit and would not reap any benefit from the payroll tax cut.

Read more: http://www.nytimes.com/2010/12/09/business/economy/09tax.html

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Note: All workers under $20,000 a year will face a tax increase.
The 2% payroll deduction will be less than the $400 "Making Work Pay" credit if you are under $20K.

[TwilightGardener]

1. If the tax cuts all expire, they'd be losing the Make Work Pay credit anyway--

that was set to expire. If we want it to keep going, it would have to be renewed, right? The way I read this is, they merely don't benefit from the payroll tax break.

[SOS]

4. Making Work Pay

was a separate credit for 2009 and 2010 only.
Losing MWP will raise taxes on lower-echelon public employees by $400.
For 2011, taxes on all people under 20K will be going up.

The tax increase on private employees will increase as income decreases.
The less you earn, the more you pay in 2011.

MWP should have been renewed, but it wasn't.

[TwilightGardener]

5. Right. Obama tried to have it renewed in his compromise, Repubs rejected it.

But it was a stimulus measure, more than a recurring tax policy. Kind of weird to characterize it as a tax increase because it expires when it was intended to--same as it's dishonest to characterize the Bush cuts expiring as an increase when they were designed to expire, but...there you are.

[Heddi]

2. Wow. I'm a state worker and I just had to check my paystub

I have a pensionish system that I pay into...instead of a 401k I do the PEBB or whatever WA state workers pay into. But I just looked and found that I pay into Social Security as well.

[A Brand New World]

3. Well - that affects me. Great news! (Sarcasm, of course.)

Thanks for warning me though. This sucks!! I make $26,000 and sure am not getting rich.

[Alcibiades]

6. This won't touch most federal employees

"All federal employees hired on or after January 1, 1984 are mandatorily covered under Social Security--the CSRS system is not an option for them."

According to the NYT, there are about 600,000 federal workers who are still covered under the older system. Most folks will see the 2% cut in their social security taxes.

A far bigger question is, if there's such concern about the solvency of social security (a manufactured issue, I know, since it would be easy to fix) why are they reducing social security taxes by 2%?

[SOS]

7. From the linked article:

"But more than six million federal, state and local government employees do not pay into Social Security at all."

State and local employees are in the mix too.

[HelenWheels]

8. I paid into SS

for the entire 15 years I worked for the state.

[OrwellwasRight]

9. It is only certain employees in certain states.

For example, public school teachers in CA and TX; certain police and firefighters (don't know which states); etc. This is because when Soc Sec was created it was optional for all government employees. Federal law changed, making all Fed employees hired after that date Soc Sec participants. For states/localitites, it remains optional (not per employee, but per hiring authority). The people who don't pay in to Soc Sec know who they are. Believe me.