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Health & Fitness

Stealth Payroll Tax Hike Lies In Wait

Unintended consequences ensue as a tax break expires.

I wonder how many individuals earning $25,000 per year would respond affirmatively if asked whether they have $500 to spare. Surely most such individuals would respond that they are barely scraping by, living from paycheck to paycheck, and that they cannot afford to part with such an amount. These folks, though, will have to come up with an extra $500 over the next year and future years because the Social Security payroll tax break that has been enjoyed for the past two years is expected to come to an end, neither major political party having expressed an interest in retaining it into 2013. (The regressive current 4.2 percent payroll tax to fund Social Security will climb to 6.2 percent January 1).

It is difficult to fault the members of Congress or President Obama for ending this tax reduction as it has starved the crumbling Social Security Trust Fund of revenues that it will need to pay benefits in the future, and studies have shown that the reduction has not served to be much of an economic catalyst. One cannot burn the candle at both ends, providing payroll tax relief now while meeting the nation's promise of a high benefit level to retirees tomorrow.

The problem is that when tax reduction is enacted, it becomes engrained in us and is expected to continue. Naturally, no elected official or governmental entity is informing the public of the impending tax hike, thus for most, the new year will provide a rude awakening upon receipt of one's first paycheck of paystub of the year, and the hit will be most severe for those at the lower end of the economic spectrum, one of the unintended consequences of well-intentioned legislation.

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