Working Americans have just experienced a pay cut they didn’t expect — the cut resulting from the expiration of the reduction in the payroll tax rate. Like most Americans, some of the folks who post at the Democratic Underground are not amused.
As Mollie Hemmingway says, it’s almost as if everyone’s taxes went up and the media forgot to mention it.
Actually, the resumption of prior payroll tax deductions is one of the few good things to come up of the “fiscal cliff” deal, in my opinion. The real cliff America faces is the debt cliff, a big part of which results from entitlements we will be unable to pay for. Social security is such an entitlement.
The reduced payroll tax was making the debt cliff even steeper. And its purpose — to stimulate the economy during a downturn — no longer applies, at least not if one accepts the Obama administration’s view that the downturn ended a while ago. Thus, it was high time to restore the old payroll tax rate.
How will the restoration play out politically? If it has any impact, it will hurt the Democrats. After all, President Obama pledged to address the debt by raising taxes on the rich. He didn’t say anything about raising them on everyone who works for a living. But coming almost two years before the next national elections, this January surprise will be of no real political consequence.