The Payroll Tax Holiday: RIP

There is a lot more to the fiscal cliff, but the two biggest tax concerns for the middle class in the discussions are the Bush-era tax cuts and the payroll tax holiday.

Both are scheduled to end in 11 days.

What you barely hear a whimper about on the news is the payroll tax holiday. Mums the word in the halls of Congress, yet every American faces a noticeable 2.1% tax increase because of it.

The average household faces a $3,400/yr fiscal cliff tax increase; that according to an article today in The Week called, “The fiscal cliff: Calculate how much it will cost you“. $1,640/yr of that increase is for the payroll tax holiday.

The Bush-era tax cuts, on the other hand, are all over the news. The middle class is being held hostage so the wealthy can keep a tax cut, we are told.

What we are not told is that the payroll tax holiday is almost half of the tax increase side of the fiscal cliff. What we are not told is that the payroll tax holiday should be ended.

Why End the Payroll Tax Holiday?

That’s easy.

Payroll taxes are earmarked to pay for Social Security and we are not taking in enough money to meet its expenses. Most Americans want to keep Social Security. The cost of Social Security is far more than raising taxes on the rich can pay for. It is as simple as that.

The payroll tax holiday specifically reduces Social Security contributions paid into it by individuals from 6.2% to 4.1%. It was introduced to stimulate the economy in another form as part of 2009’s “Stimulus” package.

Together, payroll taxes paid by individuals and employers for both Social Security and Medicare expenses take 12.4% out of every paycheck earned in the United States. It makes sense it is so much. Social Security and Medicare are the two largest expenditures in the federal government.

Continuing the payroll tax holiday only hastens the time that Social Security inevitably becomes insolvent. The longer the tax holiday lasts, the faster that time arrives and the more it will affect future beneficiaries in negative ways.


If Americans want to maintain Social Security as a part of their retirement then the payroll tax holiday has got to go. There is no such thing as a free lunch.

Both Congress and the American worker must face that fact, bite the bullet and, as President Obama says, “Do the right thing!”

The difference between Congress and the American worker is that the worker mans up to his/her responsibilities and does what it takes to get the job done; Congress, on the other hand, just wants to weasel things past voters in the dark of night come New Year’s Eve.

Even if it puts a drag on the economy, the worst thing Congress could do is continue the tax cut holiday. It is like continuing to pour sugar until the bag is empty.


About azleader

Learning to see life more clearly... one image at a time!

Posted on Dec 20, 2012, in Debt crisis, economics, fiscal cliff, Life, National Debt, news, Opinion, payroll tax holiday, Politics, Taxes. Bookmark the permalink. 1 Comment.

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