When Congress takes up the issue of extending the Payroll Tax cuts, which are currently scheduled to only run through February, there's a gotcha in place. I suspect that when people start to realize the 'math' behind this, they will have NO choice but to extend the cuts through the end of the year. To do otherwise will create a situation which could prove to be very problematic for anyone who votes against extending it.
As everyone knows, the income which Social Security (Fed OAS/EE) tax is paid on is capped. For 2012, this amount is set at $110,100. For anyone earning less than that, this tax will be deducted from every one of their checks. However, anyone making more than this, they will only see this tax on their checks until they exceed the cap.
OK, let's say that the tax cut is NOT extended. Thru February, people will be taxed at a rate of 4.2%. Starting in March, it will go back up to the original rate of 6.2% for the rest of the year.
Now consider this scenario:
We have to wage earners, one making $115,000 per year and the other, $665.000.
The first person, by the end of the year, will have paid approximately $6,734.55.
However, for the second person, since by the end of February he/she would have already exceeded the cap, they will have paid the amount they were legally obligated to pay, which would only be $4,624.20, or more than $2,100 LESS than the person earning only a 6th of what they earned would have paid by the end of the year. Can you imagine you're a Congressman running for reelection and you have to explain how your vote was appropriate despite it costing middle class Americans more than the richest people in the country.
Now I'm not saying that the people who put together this 2-month plan originally didn't have this in mind and that perhaps includes the Senate Republicans, most of whom are a lot less 'conservative' and thus a little more reasonable than the 'tea baggers' in the House. These Republicans knew that not having the payroll tax break extended a second year was going to be hard to explain to people when they had already agreed to extending the Bush tax cuts on the rich for a full two years, so if in the end the two tax breaks where not the same length, it was going to sit very bad during an election year. However, they knew that if they passed the full 12 month reduction that the Boehner would have NO wiggle room at all with the house Wackos so they agreed to the 2-month deal to help him make it more palatable, knowing that once we got into 2012 and people started to do the math (and I suspect that some of them assumed that the tae baggers were unable to do the math so it would have to pointed out them when it was too late to do anything about it) that it would be inevitable that the additional 10 month extension will be passed. To do otherwise would be potential political suicide.
And as a postscript, with Romney's tax return 'scandal' and the potential that we may find even more skeletons in his personal financial closet, that having this new disparity become apparent will make it even harder for the hardasses in Congress to NOT agree to a full year payroll tax break.
Anyway, what are any of your thoughts on this.
OCU
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