Why The Newly Reinstated Payroll Taxes Won't Drag Down The Economy

If you've already received your first paycheck of the year, then you've probably noticed that it was a teeny bit smaller than expected.

That's because when the temporary cut in payroll taxes expired at the end of last year, policymakers decided to let them stay that way as a part of the fiscal cliff tax deal, also known as "American Taxpayer Relief Act of 2012."

Now that these payroll taxes are back, the US government can expect to collect revenue equivalent to about 0.66% of GDP, according to a report by UBS' global macro team. That's a reduction of around $115 billion in the disposable incomes of American households.

So Americans are going to end up spending a little less than they would have, right?

Not really says UBS. Turns out, the payroll tax cut didn't really do much to increase spending in the first place.

"The negative consumption impact from the Social Security payroll tax rise should be far less than the estimated $115 billion hike in such taxes this year. That is because the temporary two percentage point Social Security tax rate cut in 2011-2012 was not a big consumption booster."

This keeps in line what's happened in the past—like in the 1960's, when the US government enacted a temporary income tax surcharge, spending only reduced by 35 cents on the dollar of the extra revenue.

The tax deal also enacts heavier taxes on higher income households, most significantly effecting those making $500,000 a year or more. But this will probably result in a drop in savings, not so much a reduction in spending, said the report.

Baloney! They are dragging me down. I issued paychecks today for our tiny company and immediately had an employee in my face complaining that her check was $30 less than she expected. “That’s ObamaCare,” I replied. If you’d been watching the news you’d know that this was happeneing. Of course I got NO pay check, and neither did my husband. That is how we’ve kept the doors open this past year — taking NO PAY and just paying ourselves out of money that we’ve loaned the company in the past.

But the real shock was what Obama’s 99 weeks of unemployment has done to us. My payroll expenses are up $1000 every 2 weeks. This is because I still have people collecting unemployment who left months ago and are just collecting their bi-weekly check from the state, and it has unbalanced my ratio of workers:unemployed.

Here is an email that my sister's husband (the president of the company) just sent his employees:

To all employees and affiliates of *** ****** ******, Inc.

I have had several people come to me and question why 'my paycheck is short'!

I was a little surprised at the question because I thought everyone knew that this was coming!
I am sorry to report that each one of you will notice today that you pay check is LESS!
The current administration has increased your personal taxes and it begins with this first paycheck of 2013 and will continue throughout the year!
If you didn’t think it was really coming, …..NOW YOU WILL……. because the “Tax the Rich” policies includes YOU!
The last 4 years of the white house “sidestepping politics” has reached your door step!
Up to now they have told you to “pay no attention to the man behind the curtain” everything will be SO MUCH BETTER. Well, here it is, are you feeling better?
To make matters worse, you can expect this to continue year after year with the outrageous spending of our government.
Many of us up to now were not directly affected.
We are fortunate to live in a prosperous city and state.
We have been self-sufficient and paid our own way.
But it is getting so out of control and you need to recognize that it is now affecting each one of you financially…..and you can expect it to continue!
Like being responsible for your own personal health, it is YOUR responsibility to demand accountability of our politicians and for you to make prudent political decisions in the future.
Choose Wisely as the future is here!

So I guess then the American people just wasted the tax cut on frivolous things like savings and paying down debt. You were supposed to spend it on Brawndo because it's got electrolytes.

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