Fiscal Cliff Bill Will Shrink Your Paycheck

Your take home pay will be a bit less, thanks to the “Fiscal Cliff” bill that Congress passed at the first of the year.

The reason is that the reduction in Social Security taxes which Congress passed at the request of President Obama has expired. This reduction was part of the stimulus package used to keep the country from going into an economic free-fall after the housing crash and resultant lending crisis of 2008.

I’m certain that some of my Republican readers will chide me for saying this. According to them, when I criticize the Obama administration, I’m a statesman. When I criticize the Republicans, I’m a biased Democrat.

However, it is a plain fact that I never benefitted in my paycheck from any of the huge tax cuts that President Bush passed during his presidency. My take home pay did not go up. My taxes did not drop.

On the other hand, the tax cuts President Obama enacted raised my take home pay about $100/month.

I am not a subscriber to “trickle down” economics. The reason I am not is that the money doesn’t trickle down. Or if it does, it doesn’t trickle far enough to get down to me and any of the people I represent.

We’ll talk more about this later. For now, I want to draw your attention to an article from the Baptist Press which outlines some the effects that the “Fiscal Cliff” deal had on deductions for charitable giving. I’ve bolded the section which talks about social security to make it easier for you to find.

The article reads in part:

The ‘fiscal cliff’ bill & charitable giving
 

Posted on Jan 8, 2013 | by Warren Peek/Southern Baptist Foundation

NASHVILLE (BP) — After weeks of political drama, the U.S. has averted or at least delayed the so-called “fiscal cliff.”The American Taxpayer Relief Act of 2012 has been signed into law by the president after passing both houses of Congress.

Don’t you love the names of these bills? Taxpayer “relief” means that about 77 percent of U.S. households will pay higher taxes according to Bloomberg, mostly because of the expiration of the payroll tax cut. While some provisions are still set to expire, several provisions have been made permanent.

Following is a brief summary of various provisions of the act that may impact charitable giving:

Income taxes 

The 2012 ordinary income tax rates remain intact for most taxpayers. For individuals with incomes over $400,000 and joint filers over $450,000, the federal income tax rate increased from 35 percent to 39.6 percent. The dividend and capital gains rates also increased from 15 percent to 20 percent for those filers as well. For most other taxpayers, however, the capital gains rate remains at 15 percent.

Phase-out of itemized deductions and personal exemptions 

For individuals earning above $250,000 and joint filers above $300,000, itemized deductions and personal exemptions are limited. Total itemized deductions are now reduced by 3 percent. This phase-out will be watched closely, as there is still pressure to cap or phase out all itemized deductions.

Payroll taxes

The reduction of the payroll tax in Social Security is now over. Social Security will now collect 2 percent more from our paychecks. An employee earning $113,700 (the maximum amount of earnings subject to the tax), will pay an additional $2,274 in payroll taxes this year. (Read more here.)

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  • http://www.rosariesforlife.com Dave

    With the major struggles that Social Security is going to have over its continued viability (as the number of elderly go up and the number of working age folks go down due to decreased childbearing), I was shocked that the Social Security taxes ever went DOWN in the first place. It seemed like insanity to me. Now, sanity is restored, I guess, but everyone, including me, is mad that they effectively got a pay cut. I wonder when any politician will have the guts to tackle this issue, or if they’ll just keep increasing the eligibility age to the point where it’s a joke. I’m not expecting to get much from Social Security myself. Then again, I wouldn’t bet $10 that the United States will still be around in 20 years.

  • http://ashesfromburntroses.blogspot.com/ Manny

    Well, you work for the government, how can it trickle down to you? You’re at the top of the food chain. Everything trickles in to you. ;)

    I wouldn’t call the SS reduction a tax cut. It was a temporary reduction in collection, and it was primarily for political purposes. Everyone knew it was temporary and Obama pushed it after his election–surprise surprise. It did nothing but drain SS further and bring it closer to bankruptcy. It did nothing to bolster the economy. The “economic free-fall” had stopped while Bush was still president. The recession officially ended in May of 2009 after Obama had been president for several months and before any of his “stimulus” packages were signed. There is every reason to believe that Obama’s “stimulus” curtailed the recovery.

    I am n0t in the camp of criticizing the return of the 2% SS tax. It was a dumb idea in the first place if you wanted to keep SS solvent.

  • FW Ken

    I work for the government and make far less than any of my friends in private government. About half to two-this less.

    Because I do law enforcement related work, private employment is not an option. Sloppy, cutesy, and ultimately slanderous comments about government employees are not appreciated.

  • Will

    “Sloppy, cutesy, and ultimately slanderous comments about government employees are not appreciated.”

    I agree with FW Ken about this. Just another way for people to divide others.

    • Rebecca Hamilton

      Actually, I think Manny was just poking at me, and it was a joke. I don’t think he meant to defame all public employees.

    • Manny

      Yes I was teasing Rebecca. I appreciate government workers. They deserve the respect that every worker has. I wasn’t seeking to divide.

  • FW Ken

    My apologies for taking offense inappropriately. Dad was federal and I’m state. I know how hard he worked and I’m having “one of those weeks” at work. So its a sensitive subject.

  • http://www.QuinersDiner.com Tom Quiner

    Rebecca, I was never a fan of the payroll tax cut, even though I benefitted from it like everyone else. It was passed as stimulus measure, and this type of tax has never been an effective way to stimulate the economy, as we can see from the results of the last three years. Worse, it weakened Social Security and Medicare at a time when their fiscal soundness was already impaired.

  • Virginia

    I’m afraid I have to add my voice to those above, Rebecca. Yes, the temporary waiving of a portion of FICA did increase take-home pay, especially for those earning less than the $110K cap. Unfortunately, it accelerated Social Security’s apparently inevitable slide toward insolvency. That will end up hurting a lot of elderly retirees (especially widows) who depend on Social Security. Maybe I’m cynical, but spending tomorrow’s money for today’s political gain seems irresponsible. As I wrote my congressman when he sent a letter trumpeting his vote in favor of the “payroll tax cut,”: Can you spell GREECE?


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