Will the 2% Social Security payroll tax cut expire?

(MoneyWatch) Americans could see smaller paychecks next year amid signs that President Barack Obama and Republican leaders negotiating a deal on the so-called "fiscal cliff" may not extend a payroll tax break scheduled to expire at year's end.

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Carney on "cliff" deal: "We're not going to get everything we want"

CBS News Chief White House Correspondent Major Garrett reports that Mr. Obama did not ask for an extension of the temporary 2 percent payroll tax cut in his counter-offer Monday night to a fiscal proposal put forward by Rep. John Boehner, R-Ohio.

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Boehner: "The president is not there yet" on "fiscal cliff" deal

With talks still fluid, a rise in the taxes that fund Social Security is not a done a deal. But the White House's choice not to raise the issue yesterday suggests it may be sacrificed as part of broader compromise with Republicans over proposed tax hikes on wealthy Americans. Many experts had expected the sides to allow the payroll cut to expire as planned.

Following the November presidential election, House Speaker John Boehner staked out the Republican position on a tax increase, saying that "With this vote, the American people have also made clear that there is no mandate for raising tax rates." Yet five weeks later the Ohio Republican reversed course and said he is open to raising taxes on high income-earners, but only for those with earning more than $1 million a year.

Mr. Obama countered with an offer to raise his tax rate income threshold to $400,000 a year, from $250,000, narrowing the differences between the two sides.

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"Fiscal cliff": Effect on the economy

Payroll taxes are used to fund Social Security, with businesses and employees each contributing a portion of worker's annual compensation (up to $110,100 as of 2012). For the past two tax years, employee contributions for the government retirement program was 4.2 percent, compared with the normal 6.2 percent rate. That resulted in lower taxes for 160 million Americans, providing a tax cut of roughly $960 for a typical worker making $50,000 a year and more than $1,900 for anyone with annual income of $100,000.

The intent of the payroll tax holiday was to stimulate consumer spending. A 2011 report by Moody's Analytics estimated that every $1 decrease in revenue from reducing the payroll tax for workers expands the economy by $1.27. Reducing payroll taxes is also acknowledged by many economists as a more effective way of boosting growth than most other fiscal measures, including offering housing tax credits, an employer-side payroll tax cut, and even an across-the-board tax cut, according to the research firm.

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As a result, expiration of the payroll tax cut could have major ramifications for the economy. JPMorgan estimates that the payroll tax hike "will reduce U.S. disposable income by $125 billion," which would be a drag on consumer spending and could reduce GDP growth by over half of a percent next year.

Goldman Sachs' chief economist Jan Hatzius projects that letting the tax cut expire would reduce 2013 GDP by 0.6 percent.

[RobertVBrand]

If you're poor or middle class, you pay 6.2% of your income into Social Security. If you're a CEO who makes a million dollars a year, you pay only 7/10 of 1%. No congressman, either party, says this aloud lest it cut off campaign contributions from the rich. Yet eliminating the cap on Social Security taxes (without eliminating the cap on payouts -- millionaires don't depend on Social Security for their retirement income) would fix the system without altering the COLA that would be devastating for the average retiree.

[CRABBYCARVER]

It is always easy to tell people to suck it up when it won't effect you the same way. My guess is you are making over $100,000 a year or have a second income. You have a nice expensive car, valuable home, and plenty of food on the table. You sound very Republican.

[pinklady4242]

Why not eliminate the social security tax altogether? My last social security statement contained a notification that the social security fund would be insolvent two years before I qualify for benefits. Most people currently receiving social security are also getting some kind of employer-sponsored pension, which also doesn't exist for younger workers. I'm starting to resent having to support the baby boomers in the retirement when I could be using that money to invest for my own retirement and help my kids get through college without debt.

[MidRoadAlone]

The payroll tax holiday was just that. A temporary reduction in the social security tax for economic stimulus - and a bad idea at that. To reduce the revenue going into the already ailing program was like bleeding a patient dying of internal injuries.

Obama and Pelosi promised not to cut Social Security, but in an underhanded accounting scheme they intend to reduce the COLA from here on out. Now $130 a year may not sound like much, but ask a senior living on $1200 a month how much it is.

End this cut now.

[Mungam44]

Start gathering up this tax once again. Too long has this government robbed Pete to pay Paul and with its ever increasing apppetite for borrowed money it continues to dig us into a deeper fiscal hole. Also, the tax code needs work to have more people pay federal income tax. Most people should pay something in that category especially since they have enjoyed the benefits of the protections of living in this country. Keeping an adequate flow of revenues into the SS system to keep it solvent is just one of many steps needed to get our fiscal house back in order. Kicking the can down the road to prolong the inevitable can't go on forever.

[14FREEK]

First, the tax laws take effect on January 1, 2013 because that is how
our tax system is set up. We have a calender tax year. What you make
between january 1 and December 31 is that tax year.

Secondly, the spending cuts don't take effect until July 1, 2013 becaue
the government is on a July 1 to June 30 annual budget.

So this fiscal cliff is first a tax problem on January 1-the Bush tax
cuts expire then. But the spending cuts don't need to be agreed to
until june 30, 2013.

[ticobird]

It would be a fair assumption that laid-off out of work Americans who cannot find comparable replacement jobs are thinking; "Good, I had to pay the Social Security payroll tax for decades now they should as well. What makes them so special anyway? Oh yeah, they have a JOB!"

[TimeToEvolve]

The should definitely rescind this 2% tax cut, the program needs the money. It was Reagan who agreed to raise it to the current level. And then we should get rid of the cap on it since the rich should pay the same percentage as we working folk.

[gidrev]

The "payroll tax cut" is NOT a middle class tax break. 50% of the families will get 0 to $1,000 and 50% of the taxpayers (those families making more than the median income) will get $1001 to $4,524. About two dollars goint to the upper 50% for evey 1 dollar average to the bottom 50%. Columbia University has about 37,000 volumes in the library devoted to mathematics. There is not one volume that would qualify this as a middle income tax benefit. The average single or head of household would receive about $550 while the corporate head, conressional representative would save $2,262 to $4,524 if two income professional families.

[MrLiterally]

All I can say is I work a job I hate and pay out all my money to bills and to taking care of my family, and sometimes a few other people. I cannot take on any more taxes, I'll just go under.