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Payroll Tax Holiday May Not Survive Year's End

The Social Security tax rate is scheduled to revert to 6.2 percent next year, up from the temporary reduction — to 4.2 percent on an employee's first $110,000 in wages — which has been in effect since January 2011.
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The Social Security tax rate is scheduled to revert to 6.2 percent next year, up from the temporary reduction — to 4.2 percent on an employee's first $110,000 in wages — which has been in effect since January 2011.

An occasional series, Fiscal Cliff Notes breaks down the looming "fiscal cliff" of expiring tax cuts and deep automatic spending cuts set to hit around the first of year.

If you work, you've probably been getting this tax break: Since January 2011, the government has knocked 2 percentage points off the payroll tax.

For someone making $50,000 a year, the payroll tax holiday works out to about $20 a week.

"We definitely notice it," says Steve Warner of Winter Haven, Fla., while on vacation with his family recently in the nation's capital.

"Most of what we use that for [is] just our day-to-day bills that we have. I mean, it's not like we put it away in savings or anything. It's just more money that we can actually use for gas, food and certain things like that."

That's exactly what Congress and the president had in mind when they created the holiday. But it ultimately didn't have the effect many economists had hoped for, because two years in a row, in the spring, gas prices spiked and ate up a lot of that extra spending money.

"It didn't really help support stronger growth, but it certainly helped the economy," says Mark Zandi, chief economist at Moody's Analytics. "Without it we'd be in a measurably worse place."

But even as the economy appears to still be in a rut, there's little appetite to extend the tax holiday — with its $95 billion price tag — one more time, says Zandi.

A year ago, Zandi was among those pushing for an extension. Now he says it's time to let it expire on Dec. 31. And unless something changes, it will.

Caitlin Morgan, a mother of four boys from Eugene, Ore., says for her family, the extra money was plowed into food and other living expenses. But she seems to accept that the holiday may well be over at the end of the year.

"[The] government needs to prop itself up," she says. "We need to get out of this debt. So you know, if we need to cut a few corners for that to happen, then that's OK. I'm OK with that."

Copyright 2021 NPR. To see more, visit https://www.npr.org.

Tamara Keith has been a White House correspondent for NPR since 2014 and co-hosts the NPR Politics Podcast, the top political news podcast in America. Keith has chronicled the Trump administration from day one, putting this unorthodox presidency in context for NPR listeners, from early morning tweets to executive orders and investigations. She covered the final two years of the Obama presidency, and during the 2016 presidential campaign she was assigned to cover Hillary Clinton. In 2018, Keith was elected to serve on the board of the White House Correspondents' Association.