There are a few things people should realize about the Payroll Tax Cut...

[WCGreen]

The Making Work Pay Credit was set to expire on December 31, 2010.

This means that there will be no MWPC for tax year 2011.

And remember, the MWPC was a credit that only kicked in when you filed your Federal Tax Return.

Now, while negotiating this new deal, the president and the republicans he negotiated with, came to some kind of agreement to put money in peoples pockets right now. They came up with a one time payroll tax cut of 2%. This will inject money into the economy in spurts, only realized when people receive their paychecks.

It's also a year long bump so people will be more likely to spend that money than say save the $400 MWPC.

Now president Obama could have pushed harder for the extension of the MWPC but he chose, for what ever reason, not too.

Now since the MWPC was a temporary credit set to expire this year, you really can't say that this is a tax hike for anyone.

Sure people would be paying more in Taxes at the lowest end of the income range, and I think that is one of the most heartless thing a government could do to the low wage workers, but it isn't a tax hike. It's the end of a temporary tax credit.

I think they were looking for more of a year long stimulus and not a credit that would mostly be played out by June.

It's disingenuous but, I gather, a politically cathartic exercise to claim this is a tax hike.

I understand it and I would have rather had the MWPC, but perhaps that is all that president Obama could have managed.

Maybe if some democrats had been included in the negotiations it might have come out differently.

And that is something president Obama is, I guess, ready to own.

[leftstreet]

1. So the average Serf will get about $400?

:shrug:

[WCGreen]

8. I'm not at all justifying the actions of the president...

I am trying to offer a bit of insight into why he did what he did...

[Hello_Kitty]

2. Making Work Pay came out in withholding too.

So that means people earning less than $20K are going to see a slight decrease in their paychecks immediately.

[WCGreen]

4. That was only if the person requested the change to their withholding

I do a lot of small business payrolls and most people do not choose that option on the EIC so why would they choose that option for the MWPC...


Here is the link...

http://www.irs.gov/individuals/article/0,,id=96196,00.html

[Hello_Kitty]

14. An employee may choose to opt out of the withholding

But most wage earners got their MWP through withholding.

Q1. Do I need to change my W-4?

A. Generally, for people who receive a paycheck, the credit will typically be handled by their employers through automated withholding changes. A Form W-4, Employee Withholding Allowance Certificate, will not need to be submitted for the automatic withholding change. An employee with multiple jobs or married couples whose combined income place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his/her combined income. IRS Publication 919, How Do I Adjust My Tax Withholding?, provides additional guidance for tax withholding.

There's no line for the MWP credit on the W-4. http://www.irs.gov/pub/irs-pdf/fw4.pdf

[WCGreen]

17. I defer....

I didn't do any payrolls this year. For 2009, the credit kicked in half way through the year and they only adjusted the tables late in the year.

[Statistical]

34. Not true.

The IRS witholding tables are ~$400 less in 2010 compared to 2008.

In 2009 the credit started after the start of the year thus the amount of withholding from each check was roughly doubled (since there was less time remaining in the year).

In both instances you had about $400 less withheld from paychecks. Of course withholding doesn't determine taxes due. Without the credit in 1040 a person would simply get $400 more in the year and reduce their refund (or increase what they owe). The credit on the 1040 was merely to prevent you from giving back the extra $400 not withheld.

[WCGreen]

40. I just looked at the withholding tables for 2008 and 2010....

The amount withheld amount weekly for a person making minimum wage in 2008 was $ -0-.

In 2010, the amount withheld for a person making minimum wage was $ -0-.

So the working poor would see absolutley no difference bewteen 2008 and 2010.

By the same token, the person in 2011 would be taking home an extra $ 5.80 per week.

Just the facts...

[Statistical]

42. Only in imaginary land.

First of all there is no single witholding table it depends on number of exemptions.

Second the withholding level for someone making $290 per week wasn't $0.00 in either 2008 or 2010. To have $0.00 in federal witholding one needs to have less than $116 in weekly wages.

http://www.irs.gov/pub/irs-pdf/n1036.pdf
http://www.paycheckcity.com/netpaycalc/netpaycalculator.asp

Exempt amount (weekly pay period) is $78 per allowance. So someone filing single with 1 allowance making $290 per week has $212 in taxable income or $9.60 in federal taxes withheld 2010. It was $18.40 in 2008.

"Just the facts.."
No just random made up nonsense.

[WCGreen]

43. I was using a married couple both making minimum wage....

Then I ran it through my tax programs...

Sorry, I should have made that clear.

I was looking at a couple both working with one child to show that they would have seen exra money in their pocket if the tax law went though.

[WCGreen]

44. Also, the tables have sections for single persons and married people...

I can't get my computer to open a pdf file while on line so I can't give you the link, but page 29 of pub 15 for 2010 shows that there are sections for single wage earners and ones for married wage earners.

It certainly isn't random made up nonsense.

[dflprincess]

45. This link will take you to the IRS withholding tax tables

They start on page 39. The left side of each table has the rates for singles; the right side shows witholding for married people. These charts are for computing based on % of income.

If you go down to page 41 the more detailed tables begin and, if you look at the top of page, Single or Married filing status is shown.

http://www.irs.gov/pub/irs-pdf/p15.pdf

[WCGreen]

46. Thank you...

I am having trouble getting PDF's to appear on my screen but I can download them...

I should have made myself clear. I was really trying to compare scenario and I certainly didn't make that clear.

The whole point is people at the bottom of the income ladder will be slightly better off on a pay check to pay check basis under this new tax proposal.

[Hello_Kitty]

47. But they're not going to be better off.

They're going to be slightly worse off from this year.

[WCGreen]

48. on a paycheck to paycheck basis they would have more money in their pockets...

Over all they would have been better off for the whole year.

I think the rational behind it,as far as I can tell, was to expand the amount of money being injected into the system throughout the year.

The point I was trying to make is that lower social security percentages will get money into peoples pockets little by little so they would be more likely to spend it.

If it was us to me, I would have stayed with the MWPC. It's more fair and the people who received it would have spent it vs. the money shoveled at the people who would hardly noticed if it was there or not.

[Hello_Kitty]

49. MWP went into (most of) their paychecks too, and it was more.

[WCGreen]

50. Not for people who didn't have withholding to begin with...

I'm looking at the 941 and I don't see anything about a reduction of liability for the employer if there was a credit.

This is why they adjusted the withholding tables.

This leads me to believe that the MWPC can take the withholding to zero but not below zero like a EIC does.

Anyway, my point is that you have to have a threshold to have withholding to begin with in order to take it to zero.

Reducing Payroll Tax from 6.2 to 4.2 is a reduction in tax that will show as an increase for employees from the first dollar earned.

The MWPC appears to increase the threshold for withholding so that people who work part time or earn say 100 bucks a week will not be have hit the threshold for withholding so there would be no extra money in their paycheck. However, under the Payroll Tax reduction, they would have an extra 2 bucks in their paycheck.

Look, the point I was trying to make is that the presidents team was trying to get extra money into peoples hands. People who make up to $106,000 will get extra money in their paychecks.

Again, I do not think that this payroll tax reduction is the way to go and I would much rather have the MWPC for one more year since it targets the credit to people who need it most.

[xchrom]

3. We pay out of the general fund to SS - a bad precedent - and we have to beorrow

980 billion dollars - very bad.

[WCGreen]

6. I brought that up back on December 6th in a post that sunk like a rock...

[DJ13]

5. It's also a year long bump so people will be more likely to spend that money

Its $11+ per week.

I know the administration and their defenders want to claim it will be a stimulus, but please, lets get real here.

$11 per week is no stimulus and it wont do shit for the economy.

[WCGreen]

7. I believe the argument is that they wont notice that little bit of Cash

so they will more likely spend it...

100,000,000 workers spending 1,100,000,000 into the economy each payroll. That's a lot of stimulus.

Not defending it, just pointing out that this was probably the reasoning behind this approach.

[gratuitous]

10. True fact; the impact will be negligible

But the good news for the Republicans is that when this measly extra amount is due to expire, they can yammer and holler at the top of their lungs that the "tax and spend" Democrats are trying to take "your money" away from you in the Biggest Tax Increase Affecting the Most People Ever in the History of the World. There will be minor back-page editorials in a few newspapers and some subscription-only online columns that will put the lie to this yammering, but for the most part, the major media will simply report what the Republicans are saying without bothering to inform people where it's wrong.

Then, in a few years, when someone points out what a lousy job the media did in reporting on this disaster, they'll defensively point to these tidbits, and pretend they were staunch voices against it all. After a few predictable contortions, they will turn it around and blame the victims of these horrible policies.

[WCGreen]

13. The impact will be massive to the economy.

Especially now with hiring ticking up.

Taking that $11 average and extrapolating out to the whole economy, that amounts to $1.1 billion each pay period injected into the economy.

[gratuitous]

21. I don't think it will

A bucket of red dye dumped in a swimming pool would have a noticeable effect. That same bucket dumped into the Pacific Ocean? Not so much. In a country with a gross domestic product of $14.26 trillion, $1.1 billion just isn't that significant.

[WCGreen]

23. That's every week.....

So that is roughly $60 Billion injected into the economy.

[gratuitous]

26. In total, less than one half of one percent

I'll stand by my estimation of "negligible." It's a bucket of red dye sprinkled over the Pacific Ocean over the course of a year.

[WCGreen]

28. It's still a good steady chink of money that wouldn't be there to begin with...

remember, I didn't say I agree with the plan, I think it didn't go far enough and too far in many cases.

But still, most economists think this is the best way to get money into the economy in a steady manner.

Beside, the multiplier effect with actually be injecting a lot more money when all is said and done.

[Statistical]

35. Actually the total amount is more like $120B.

Roughly 1% boost to GDP. That is hardly "nothing" when it comes to stimulative effect.

[WCGreen]

41. Thank you for clearing that up...

I had heard originally that they were thinking it would be about a $60b injection.

[Hello_Kitty]

16. For people making less than $20K it's a hit on their income.

The Making Work Pay credit that this SS tax cut is replacing was worth more for them.

[WCGreen]

19. I'm not defending the change, just offering some other information

and perhaps some of the motives behind the change.

I thought I made it clear that I wasn't in favor of this change in several line in my OP.

[Hello_Kitty]

25. I realize that you made your OP in completely good faith and that you're not defending it

Probably what happened was the bean counters who put the package together either failed to notice this disparity or underestimated the impact. I called my members of Congress and urged everyone I know to do the same to press them to change this. All they would have to do is reinstate a partial MWP credit to make up the gap or they could expand the EITC similarly for the affected groups. It's an easily fixed problem to something that is terribly unfair and has the potential of being a PR nightmare for this administration and Dems.

[Ozymanithrax]

20. $11 X 100 million paychecks

is 1.1 billion dollars every two weeks to stimulate the economy. Very few people are going to set aside that $11.00 and will just spend it, putting the money right back into the economy.

Krugman does consider this an economic stimulus, though not enough. Also, Keynesian economics states that we should not give a flying fig about deficits while trying to get out of a recession. The private sector is woefully inadequate to fix the problem they caused, and with depressed consumer activity there is nothing to push the economy up from the hole. Government must pull it out of the hole and belt tightening will just make the process longer.

[DJ13]

27. Stimulus needs to have an impact on the individual for it to be effective

Real stimulus has to be psychological in order to have the most impact.

People need to feel they really do have more money to spend.

Look at it this way, Obama's initial stimulus in early 09 was mainly tax cuts for the middle class, right?

Yet a majority of people really believe there was a tax increase, not a cut.

The reason they think that is because the tax cuts were so insignificant for the individual in a weekly paycheck that it went unnoticed.

That initial tax cut was a waste simply because it had no psychological impact because it was too small in dollars and it was spread out over an entire year.

As such this 2% cut will also have no stimulative impact.

[Ozymanithrax]

31. Krugman disagrees, so I will take his word for it. n/t

[DJ13]

32. Sure he does

[Ozymanithrax]

33. And you are a world reknowned economist? n/t

[DJ13]

36. If you've read Krugman for any length of time you might know he's more on my side than yours

He has been screaming for far bigger stimulus than anything Obama has offered since the crisis began.

Thats precisely what Im saying, the 2% tax cut on withholdings is too small to be effective.

[Ozymanithrax]

37. He said it wasn't big enough, but that it is a stimulus.

Therefor, I tend to accept his reasoning.

[DJ13]

38. It may be a stimulus, but its too little to be stimulative to the economy

There IS a difference.

[dflprincess]

9. And a year from now they'll just let FICA go back to 6.2%?

Why not just drop a person's withholding tax by 2%? Why put Social Security at risk by having it rely on the general fund? Now, rather than relying on its own funding, it can be claimed that it is contributing to the deficit.

This is one of the dumbest moves Obama could have made and, in light of the SS foes he appointed to his deficit commission, his motives have to be questioned.

[WCGreen]

11. It was a very dangerous step for president Obama to take...

and one, I fear, our children will pay dearly for this in 30-40 years down the road.

[dflprincess]

39. I'll bet we will all be paying for it sooner than we think.

Just as soon as Congress finally decides to do something about the deficit and announces how "we" (we being the working and what remains of the middle class) will have to make sacrifices. One of the first things they'll put on the chopping block will be the money from the general revenue that is being used to "make up the Social Security shortfall" (and you know that's what they'll call it).

Obama has sold us out completely.

[Ruby the Liberal]

12. MWPC didn't defund SS and Medicare

This does. It is also the first time any administration has elected to specifically pull funding from SS/Medicare since those systems were implemented in the 1940s and 60s.

[WCGreen]

15. Technically it is not refunding Social Security...

It is cutting the contribution rate for one year.

[Ruby the Liberal]

18. You think *any* politician is going to be called out on "raising taxes" in an election year?

Yer dreamin....

[WCGreen]

22. I'm adding a different perspective...

Not at all condoning president Obama's actions.

[unlawflcombatnt]

24. By the same reasoning....

"Sure people would be paying more in Taxes at the lowest end of the income range, and I think that is one of the most heartless thing a government could do to the low wage workers, but it isn't a tax hike. It's the end of a temporary tax credit."

By the same reasoning, letting all the tax cuts expire isn't a tax hike, either. It's only letting a "temporary" tax cut expire--the Bush tax cuts.

You can't have it both ways.

[abelenkpe]

29. +1 nt

[WCGreen]

30. I want them to expire...

and I would not consider them a tax hike.

Damn, how did you get it that I was in favor of this tax bill...

[awoke_in_2003]

51. Wow, $400/52=

$7.70 a week. And the likes of Bill Gates still do not pay their fair share.