Wes Moss: What will it cost you when payroll tax cuts expire?

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

The holiday season has just begun, but Congress might have already settled on your gift: a return to higher payroll taxes, starting Jan. 1, 2012.

The payroll tax funds Social Security and Medicare. You may recognize it from your pay stub as FICA (Federal Insurance Contributions Act). The payroll tax is normally 12.4 percent of your gross pay. You pay half (6.2 percent) and your employer pays the other half. The tax is charged on every dollar of salary or wages up to a maximum of $106,800 per year.

But at the end of 2010, Congress enacted a 2 percent payroll tax reduction for employees as part of a larger compromise to extend the Bush-era tax cuts. That reduction expires on Dec. 31, and unless Congress reconvenes and changes something, your paycheck could be 2 percent smaller in 2012. If you make $50,000, you will keep $1,000 less in 2012 than you did this year.

According to estimates, the impending 2 percent reduction in take-home pay will cost the average American family close to $83 per month. That’s a week’s worth of groceries, or nearly two tanks of gas for the car.

Plus, the loss of this temporary tax cut will take money out of the consumer’s pocket, causing people to spend less, and companies to sell and earn less. That’s a headwind for job growth and corporate profits. This could cause more problems for the stock market and your 401(k). I estimate that over the next two years, the return of the 12.4 payroll tax will cost the economy more than $140 billion. That could shave nearly 0.75 percent off our gross domestic product (GDP) each year.

On the flip side, Social Security is already in trouble, with some experts saying the system could run out of money in 25 to 30 years. Permanently reducing employee contributions to Social Security certainly won’t help solve that problem.

I’m all for tax cuts and breaks. But the federal government is in serious financial trouble. Minor tweaks and changes aren’t going to solve the problem. We need leaders to who can offer and implement a strategic vision. Leaders who can make Washington — and the American people –- understand that certainty and clarity on tax and fiscal policy are absolutely crucial to getting the economy and government back on track. Ideally, that vision would include a simplified tax code that would remain stable for at least the next decade.

For us to turn this thing around for the long-term, just about everyone, regardless of political affiliation or economic status, is going to have to bear some of the burden, whether it’s higher taxes, lower government benefits or reductions in favorite programs. Any leader hoping to sell a real solution in the current divided political environment will have to be the next Winston Churchill.

Remember, it was Churchill, who, immediately upon being named Prime Minister, told the British people all he could offer them in the face of looming disaster was “blood, sweat and tears.”

Do you think we have that leader waiting in the wings? Let’s pray we do.

– By Wes Moss, for Atlanta Bargain Hunter

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92 comments Add your comment

This is Mrs. Norman Maine

November 28th, 2011
6:32 am

That particular tax cut should never have been enacted in the first place. We couldn’t afford it. They said from the outset it was temporary and we should have been prepared for it. I’ve already adjusted my budget.

wmatlanta

November 28th, 2011
6:35 am

Lauren there’s a correction needed to the cutline under the split dollar bill photo on the previous page.
The payroll tax cut is going away, not the payroll tax.

Jon

November 28th, 2011
6:36 am

Article doesn’t work. Worst paper ever.

Tony

November 28th, 2011
6:36 am

So, what about the temporary tax cuts for the extremely wealthy? Will they also expire?

M

November 28th, 2011
6:37 am

More Hope & Change!

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Chris

November 28th, 2011
6:47 am

Well written, thanks – now I’m pissed.

DG

November 28th, 2011
6:52 am

why the hell does anything over $106,000 NOT get taxed?! So sick of unequal treatment and that seems like a pretty big chunk of change the Fed is missing.

Ronnie Raygun

November 28th, 2011
6:52 am

So the GOP will block another tax cut for working people unless the idle rich get their tax rates cut to 28%. Way to put party before country. traitors.

makes cents

November 28th, 2011
6:53 am

I agree at wmatlanta. When where there be a day that the ajc practices journalistic excellent in all respects? “We need leaders to who can offer and implement a strategic vision.” The “to” is not needed.

We should have been paying higher taxes the day we invaded Afghanistan. Instead, we borrowed money from China and leave future generations with a debt to pay.

The chickens will come home to roost! Be prepared.

Jim Tavegia

November 28th, 2011
6:56 am

You can’t have it both ways. If you want government services then someone (you if you have a job) will have to pay for it. Don’t expect congress or this president to reduce the size of government any time soon. Too busy playing golf you see to worry about the world problems. Afghanistan is just not that big a deal. The way black Friday went it sounds like Americans are doing fine, except for the fighting and pepper-spraying and stuff. Are there no work houses….are there no prisons?

unemployed

November 28th, 2011
6:59 am

The poor get poorer and the rich get richer ! I was one of those hit by this stupid recession fueled by wall street greed and the filthy rich to wipe out the middle class. Yes I was middle class but the recession took care of that and due to my age impossible to find employment in the recessed job market.
So luckily my wife was able to keep her job but her hours were shortened from it too and if not for a family member having an old abandoned house I could make reasonably livible on a extremely tight budject I guess the wife and I would have been one of these street people you see on the curbs !
What a wonderful country hey ???? Only in America !

Wrecker

November 28th, 2011
7:06 am

Some really dumb comments today. The upper limit of $106k (formerly much lower) was instituted because this was originially sold as a contribution/insurance plan, despite that it is a huge Ponzi scheme. People making significant salaries would never receive any portion of the amount taxed over the ceiling.

The “idle” rich? Are you talking about the people who create most of the jobs and provide most of the capital in the U.S.? Most of the “rich” people I know are not “idle”; they work much harder than you do. They pay more in taxes than you make annually. In fact, they pay a much larger share of the income taxes than their income would warrant. Lose the wealth envy.

shaggy

November 28th, 2011
7:06 am

Where were all of you “voters in name only” when congress used Social Security as a slush fund…funding other pork barrell projects to keep getting elected? I’ll tell you where…lining up to vote for your favorite crooked politico scum, because they wanted to tax the rich or they wanted to control a womans uterus…that’s where. You got to hand it to the corrupt politicos; they kept the voters dumb and led around by the nose, like a cow.
The “do anything to get elected” status quo chicken has come home to roost and it’s defecating on YOU!

GA Citizen

November 28th, 2011
7:08 am

Impact on Social Security is nil. All FICA revenues are automatically “borrowed” by Uncle Sam and used to fund current expenses. There is no “Trust Fund”, just debt. I agree that we need leaders who will tell the truth and make us take our medicine. Don’t see any in D.C. today.

dd

November 28th, 2011
7:11 am

Jesse Ventura

@ DG, Ronnie, and unemployed

November 28th, 2011
7:17 am

The reason that the cutoff is at $106k is because folks who are smart enough, work hard hard enough, are talented enough, and yes, are fortunate enough to make more than that don’t need to pay even more to support whining freeloaders who want to take even more of what they have earned.

Folks like you need to MAN UP. Take charge of your own future, stop whining and stop blaming “wall street greed” , evil Republicans, and other straw men. Seriously- take stock of your life. Is there anything you could do to improve your employability? Take come classes? Show up earlier than everyone else? Work later? Work harder? Work smarter? The bitter truth is that the vase majority of the time, a person is paid what they are worth in the market. If you don’t have enough money, YOU need to do something about it, and stop blaming others. This country is becoming a nation of wimps.

Fred

November 28th, 2011
7:17 am

Tony

November 28th, 2011
6:36 am

So, what about the temporary tax cuts for the extremely wealthy? Will they also expire?
+++++++++++++++++++++++++++++++

Yeah right lol. Did you type that with a straight face?

fur trapper

November 28th, 2011
7:18 am

For a little history refresher: Winston Churchill, while an inspiring leader during WWII, helped Britain become the welfare basket case it is today. He fell hook, line and sinker for the “central planning” ideas of the Webbs. That is the last type of leader we need!

Tough Enough As it IS

November 28th, 2011
7:19 am

Thank you Obama! Consider this as a Taw Hike!

Wrecker said it very well!

November 28th, 2011
7:20 am

Amen! Wealth envy is at the root of a lot of this mess.

Buzz G

November 28th, 2011
7:23 am

The “payroll tax” is the only source of income for Social Security. If you want to be able to retire some day, you are going to have to put money away now. Social Security tax is just one way to do it. If people lived like government, we would all be broke. Democrats are addicted to debt. That’s how they get elected. They promise people to give them free stuff while telling them all they have to do is tax the richest 1 per cent. But instead they borrow more money. The richest 1 per cent would leave the country before they let themselves get raped by Democratic politicians.

#occupy my desk...

November 28th, 2011
7:27 am

Who was it that said “socialism works until you run out of other people’s money?” – we need that person…

Rick in Grayson

November 28th, 2011
7:28 am

I wish the author would have pointed out that those that contribute the LEAST to Social Security actually benefit disportionately more than those that contribute the MOST!

The “rich” already subsidize the “poor” when it comes to Social Security. When will everyone start paying their “share”. The idea of different “fair” shares is ridiculous. Why should those that work and study hard, get an education and work difficult jobs subsidize slackers?

There are slackers in all income groups, but there are certainly a lot of people who have put very little effort into their “chosen” field of work. I just can not see how some many people “justify” taking money earned by someone else for their own benefit!

Jim T and Buzz are right.

November 28th, 2011
7:30 am

Really good points. A couple of the two most important points that folks are missing in this national discussion are that government programs have to be paid for somehow and that unless the People stand up and demand that programs be cut, Government (both R and D) simply has no incentive to do so. Both parties are guilty of failure on this point. Government spending has become nothing more than a way to buy votes for re-election. Not only is much of it wrong-headed, it’s inefficient. Face it. The best and brightest among us generally don’t work for the Government.

Beside the econoomic costs, our dependency on the Government to provide for our every need has made us a weaker and less-productive society. That is going to end up being an issue every bit as big as the economic problems that runaway spending has caused.

Devil's Advocate

November 28th, 2011
7:43 am

The “wealthy” should pay more taxes if they make more money and spend more money! Wouldn’t that still be the case if there were a flat tax? The argument that they shouldn’t pay “too much” because they are the “job producers” is plain silly. I love the new “take charge and work harder” stuff that’s replacing the old “pull yourselves up by the boot straps” crap from last decade.

In a society with a free market economy based on capitalism, how is it possible for everyone to be “wealthy”? There is not an unlimited source of money in some garden we can all harvest money. Isn’t that the inflation failure of our country printing more money? Imagine that, the pro-wealthy crowd encouraging more money printing to line pockets. Is it possible for every household in America to earn $200K per year in our economy? Please pro-wealthy, tell me how that is possible without the redistribution of wealth that you’re so against!

Someone has to make the french fries and sweep the floors for crying out loud. Does that make them lazy and unmotivated because everyone literally cannot fall into a management position? I know Corporate America tried to do its part by creating so many management positions to soak up corporate funds to the top but really…

Bill Orvis White

November 28th, 2011
7:45 am

This is simple: end Social Insecurity, Mediraid, Mediscare and the payroll tax. Implement the FAIR Tax system and you will see small business owners make investments and hire new folks. I don’t blame that Looman fella for saying that he won’t hire anyone until Hussein Obama is out of office. I’m the same way. Why try when this failure of a president just doesn’t get it. It’s a fact that this Marxist in the White House has fallen down on the job and I only wish this once-free nation would have woken up two years ago to help remove this disaster from office.
Amen,
Bill

@recker said it very well!

November 28th, 2011
7:48 am

“Amen! Wealth envy is at the root of a lot of this mess.”

Are you kidding? Why is wanting the rich to pay their fair share considered wealth envy. This term, along with “class warfare” was created by wealthy lobbyists and Republicans to further their GREED and you fell for it.

Geezer

November 28th, 2011
7:48 am

Move money from the defense budget to social security. Problem solved.

Elsieyes

November 28th, 2011
7:53 am

Keep in mind!!! This mess Bush started was going to take at least 8 years to clean it up!!!!!
So please dont blame our handsome, smart President for this mess.

Get a life republicans!!!! Instead of calling yourself republicans,you should call yourself “negative energy”!

willydoit?

November 28th, 2011
7:54 am

“Do you think we have that leader waiting in the wings? Let’s pray we do.”

Would it really matter if we did have a leader that you speak of?
America is so divided amoung party lines that anyone that has “true vision of change” for the better will be met with animosity from the opposite party…just read all the comments on Jay Bookman’s articals.

There are too many voting freeloaders in America to ever really fix our fiscal problems.

Sloan

November 28th, 2011
7:56 am

Yes, taxes are needed to fund government programs. It is the need for most of the government programs that should be questioned!

Responding to Devil's advocate

November 28th, 2011
8:01 am

No, everyone in society cannot be wealthy. You are correct that there is not an unlimited amount of wealth and that there are going to be people who earn more than the average and there are going to be people who earn less than the average. The point behind the “pull yourself up” comment is that if you are unhappy with your condition/income, the correct and intellectually honest response is to work on yourself to maximize your ability to earn. Blaming others or looking to the Government to take from others only to give to you is simply wrong.

There is no dishonor in sweeping the floor or making fries. However, if you are not happy doing that and want to make more money, YOU need to take charge of making the change and stop blaming folks who already have made the change.

What is a "fair share"?

November 28th, 2011
8:03 am

I keep seeing comments about making the rich “pay their fair share”. What exactly is a “fair share”? Enough so that you get all the services you want and don’t have to pay any taxes? I thought so. I think I have the formula figured out….

Fair Share?

November 28th, 2011
8:03 am

Fair share? The so called 1% pays over 40% of the taxes, while 50% of Americans don’t pay income taxes.

ugafan13

November 28th, 2011
8:05 am

Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other.
Ronald Reagan

Mark

November 28th, 2011
8:09 am

Most Republicans work hard, earn lots of money and give an unfair percentage of that money back to the government. Most Democrats don’t pay taxes (whether they work or not, but welfare collectors are another story), yet they are the ones that benefit from the government programs that Republicans pay for. No wonder there is class envy. Where’s the motivation to work hard and become successful when you can sit on your duff and be given someone else’s money for zero effort?

The solution

November 28th, 2011
8:10 am

We need:

5:1 ratio of real cuts to tax increases
Limit total tax burden to 20% of GDP
Make everyone pay some level of tax so that they have a “skin in the game”
Go to some sort of consumption tax so that the underground economy is taxed (criminals, folks without SS number, folks who are paid in cash, etc,,)
Eliminate most tax exemptions/loopholes
Review each and every government program and decide whether or not it is really needed
Require a sunset provision on every spending bill so that if it is not re-enacted, it goes away.
Increase the age of Social Security eligibility six months every two years starting in 10 years.

Just a starter list…

darb

November 28th, 2011
8:11 am

Just another example of someone, in this case the govt getting deeper into our pockets. This will never stop, and we cant become a greater debt consumer than we already are. We certainly are a debtor nation.

Neo

November 28th, 2011
8:11 am

get out of the Matrix

woodrow

November 28th, 2011
8:11 am

1% owns 70% of the wealth. They can pay more tax. We don’t need to raid old peoples retirement funds and medical care.

@ Woodrow

November 28th, 2011
8:12 am

And why, exactly is anyone else entitled to their money?

Martin Brittain

November 28th, 2011
8:15 am

It’s time to pay for some of the Social Security and Medicare program costs. I wish payroll taxes were designated for a special fund as originally explained when conceived rather than being mingled with all other federal revenue.

More spending cuts and more tax increases MUST occur or our government and economy will collapse!!!

Martin is right

November 28th, 2011
8:17 am

And so is “the solution” It’s gonna take lots of cuts and some ax increases. You can’t fight math.

Big Al

November 28th, 2011
8:18 am

Only 418 days until Obama and his “Change” are finished. I don’t know how our country has survived these last 3 years. Count down the days until January 20, 2013.

roberta

November 28th, 2011
8:20 am

we need to start getting taxes from illegal immigrants and stop giving medicaid and wic to them as well.

Brian

November 28th, 2011
8:20 am

Social Security has already run out of money. Our gov’t spends it every year. There is no bs lock box trust as the left has led many to believe. SS can be easily fixed but medicare and medicaid cannot. They are bankrupting the country. California is worse than greece.

carlosgvv

November 28th, 2011
8:21 am

Do we have leaders waiting in the wings who will be honest enough to say they can only offer “blood, sweat and tears”? No, we don’t. Not yet. Only when the brutal truth is clear to everyone will that happen.

34 and punished!

November 28th, 2011
8:22 am

I’m 34. I will not received any of the FICA money that is STOLEN from my paycheck. My company no longer offers a 401k. I have worked since I was 16. My generation will not retire for we are the ones who will support this horrible debt and taxes until the day we die.

Obozonomics

November 28th, 2011
8:24 am

For all you loser who keep saying “The rich need to pay their fair share”, will just one of you wing nuts define fair share? 50% 75%?