When Amanda Haddaway of Frederick received her first paycheck of the year this week, she noticed it was $75 less than her last paycheck in 2012.
Now that federal lawmakers have allowed a 2 percent Social Security payroll tax deduction to expire, Haddaway’s take-home pay will be $150 less each month.
The tax deduction, in place since 2010, expired Jan. 1.
For workers in Frederick County and throughout the country, that means the paychecks they received last week or this week are a bit lighter.
For most U.S. workers, Social Security payroll taxes will go up from 4.2 percent to 6.2 percent.
And, workers earning the national average annual salary of $41,000 will receive about $32 less in their paychecks. For someone making $50,000 a year, it amounts to $1,000 coming out of their paychecks annually.
“It’s very frustrating when [Congress] negotiates a pay raise for themselves,” Haddaway said. “Some people live paycheck-to-paycheck and budgeting will be difficult.”
As the director of human resources and marketing with Folcomer Equipment Corp. in Frederick, Haddaway said she was aware of the change.
“I know a lot of my employees will be surprised,” she said. “I will not have a problem paying my bills but it does hurt the economy. There is less money to put in savings, buy groceries and save for retirement. There will be less in discretionary spending.”
Heather Ernst, marketing director of the Francis Scott Key Mall in Frederick, said she expects sales to take a hit.
“I do think it will inhibit shoppers from spending,” she said. “You’re talking about $30-to-$40 less that can be spent going out to dinner or at the mall.”
U.S. Rep. Chris Van Hollen (D), who represents Maryland’s 8th Congressional District, said he wanted to extend the 2 percent payroll tax reduction for one more year, followed by a 1 percent reduction the following year, eventually phasing it out.
“It was never intended to be permanent,” Van Hollen said. “We were able to backfill the Social Security Trust Fund dollar-for-dollar and kept it whole, but over the long-term we need to have revenue stream. But I was an advocate of extending the payroll tax agreement, but it was never intended to be permanent.”
There are no signs that Congress will reinstitute the tax cut in the near future.
“The payroll tax holiday was always intended to be temporary because it was very important to keep money flowing into the economy during the most severe part of the economic downturn,” said Susan Sullam, communications director for U.S. Sen. Ben Cardin (D-Md.), in an email.
“The bill voted on by the Senate on New Year’s Eve made tax relief for middle-class families permanent at a lower rate, which Senator Cardin believes will provide both short and long-term stimulus for the economy.”
The budget deal to avoid the fiscal cliff extends jobless benefits for the long-term unemployed for one year, extends for five years the child tax credit, the earned income tax credit and an up-to-$2,500 tax credit for college tuition.
And the tax rates in place under former President George W. Bush were allowed to lapse for those earning more than $450,000 annually.
Congress also decided to delay the effects of sequestration, across-the-board federal spending cuts, by two months.
Ending the “payroll tax holiday,” as it is also known, was a bipartisan deal as part of the overall budget package passed by Congress on New Year’s Eve.
Josh Bivens, a research and policy director with the Economic Policy Institute, an independent, nonprofit think tank that researches the impact of economic trends and policies on working people in the country, said in a Jan. 2 news release that the payroll tax cut is off the table for now.
Bivens predicts that the lapse of the payroll tax cut and the impending sequester, in part, will result in about 1.6 million fewer jobs by the end of 2013.
“What do we know for sure?” he said. “The fiscal cliff was definitively not averted. Action wasn’t taken until after Jan. 1 ... obsessive worrying about that date displayed a real ignorance about the economics of this situation.”
The state’s newest congressman, U.S. Rep. John Delaney (D-Dist. 6) of Potomac said his focus will be on creating new jobs.
“Both sides had elements of the package that they weren’t happy about, but the alternative, sending our economy into a recession with harsher tax increases, would have been worse,” Delaney said in an email. “We still have a lot of work to do to put us on a path to fiscal health. As we move forward, my focus is on improving our economic competitiveness so that we have more good paying jobs for working Americans.”