The Washington Times-Herald

Community News Network

January 11, 2013

Here's why your paycheck just shrank

WASHINGTON — Many Americans just received their first paycheck of 2013. That sound you hear is the collective "What the . . ." they have emitted upon looking at their pay stub.

For all the self-congratulatory back-patting from the White House and Congress on the deal that averted the "fiscal cliff" of tax increases — the deal locked in the George W. Bush-era tax cuts for households making under $450,000 — they tended not to mention what the deal did, or rather didn't do, on the payroll tax. A 2 percentage point reduction in the Social Security tax, which hits all American workers, had been enacted at the end of 2010. In the fiscal cliff deal, Congress and President Barack Obama neither extended it further nor agreed on any other policies that might have the similar effect of leaving more money in workers' pockets.

The numbers, for anybody who hasn't checked their paycheck yet (or won't get paid in 2013 until later in the month): For someone who makes the U.S. average for private sector workers of $818.69 a week and is paid every other week, that adds up to a reduction of $32.75 in each paycheck. For higher earners, anyone making over $113,700 annually, each bi-weekly paycheck will decline by $87.46.

The increase in payroll taxes has now gone from being an abstraction in Washington policy debates that politicians prefer not to talk about to being something very real.

The big question for the economy as 2013 gets underway is how America will react to their smaller paychecks. It is uncharted waters in many way: For most of the last two decades, taxes have been steadily falling. There is not much evidence for just how much Americans will pare back in response to tighter times and a higher tax burden.

One place to look for evidence is what happened when the payroll tax cut was implemented at the start of 2011. In the first six months of the year, personal consumption spending rose 2.2 percent, though that coincided with a spike in fuel prices tied to unrest in the Middle East, so when adjusted for inflation consumption spending rose only 0.6 percent. (In a way, it turned out to be lucky timing; in effect, the payroll tax break offset the economic drag that came from what turned out to be a temporary bump in oil prices.)

Text Only
Community News Network
  • The virtues of lying

    Two computational scientists set out recently to simulate the effects of lying in a virtual human population. Their results, published in the Proceedings of the Royal Society B, show that lying is essential for the growth of a cohesive social network.

    July 31, 2014

  • lockport-police.jpg Police department turns to Facebook for guidance on use of 'negro'

    What seems to be a data entry mistake by a small town police department in western New York has turned into a social media firestorm centered around the word "negro" and whether it's acceptable to use in modern society.

    July 31, 2014 3 Photos

  • Screen Shot 2014-07-31 at 2.12.55 PM.png VIDEO: Five-year-old doesn't want her brother to grow up

    Sadie, an adorable 5-year-old from Phoenix, wants her brother to stay young forever, so much so that her emotional reaction to the thought of him getting older has drawn more than 10 million views on YouTube.

    July 31, 2014 1 Photo

  • Why a see-through mouse is a big deal for scientists

    A group of Caltech researchers announced in Cell Thursday their success in making an entire organism transparent. Unfortunately, this isn't any kind of "Invisible Man" scenario: The organism in question is a mouse, and the mouse in question is quite dead.

    July 31, 2014

  • Sunburn isn't the only sign of summer that can leave you itchy and blistered

    You've got a rash. You quickly rule out the usual suspects: You haven't been gardening or hiking or even picnicking, so it's probably not a plant irritant such as poison ivy or wild parsnip; likewise, it's probably not chiggers or ticks carrying Lyme disease; and you haven't been swimming in a pond, which can harbor the parasite that causes swimmer's itch.

    July 30, 2014

  • Survey results in legislation to battle sexual assault on campus

    Missouri U.S. Sen. Claire McCaskill joined a bipartisan group of senators Wednesday to announce legislation that aims to reduce the number of sexual assaults on college campuses.

    July 30, 2014

  • An alarming threat to airlines that no one's talking about

    It's been an abysmal year for the flying public. Planes have crashed in bad weather, disappeared over the Indian Ocean and tragically crossed paths with anti-aircraft missiles over Ukraine.

    July 30, 2014

  • Sharknado.jpg Sharknado 2 set to attack viewers tonight

    In the face of another "Sharknado" TV movie (the even-more-inane "Sharknado 2: The Second One," premiering Wednesday night on Syfy), there isn't much for a critic to say except to echo what the characters themselves so frequently scream when confronted by a great white shark spinning toward them in a funnel cloud:
    "LOOK OUT!!"

    July 30, 2014 1 Photo

  • 20140729-AMX-GIVHAN292.jpg Spanx stretches into new territory with jeans, but promised magic is elusive

    The Spanx empire of stomach-flattening, thigh-slimming, jiggle-reducing foundation garments has expanded to include what the brand promises is the mother of all body-shaping miracles: Spanx jeans.

    July 29, 2014 1 Photo

  • Medical marijuana opponents' most powerful argument is at odds with a mountain of research

    Opponents of marijuana legalization are rapidly losing the battle for hearts and minds. Simply put, the public understands that however you measure the consequences of marijuana use, the drug is significantly less harmful to users and society than tobacco or alcohol.

    July 29, 2014