WASHINGTON (CBSMiami) – While much of the focus with the ongoing austerity crisis on Capitol Hill has been overall tax rates, both President Barack Obama and Republican Speaker of the House John Boehner have agreed on one tax principle: ending the payroll tax holiday.
President Obama had originally sought to extend the payroll tax holiday, but Republican opposition caused the president to effectively scuttle the plan. The tax will hit all Americans, but working Americans the hardest.
Two years ago during the heart of the Great Recession, the Social Security payroll tax was dropped by two percent to 4.2 percent. The rate has stayed the same for the last two years, but with the impending austerity crisis about to hit, the payroll tax will increase by 2 percent on January 1.
On average, a worker will lose $40 per paycheck due to the tax increase, according to TalkingPointsMemo.com. Combining the payroll tax hike with a possible cut to unemployment compensation could lower economic growth by 0.7 percent over the next two years, according to TPM.
Republicans will not let the payroll tax cut pass unless it’s part of a larger fiscal deal between Congressional Republicans and Democrats. President Obama wanted the tax break extended to help provide fiscal stimulus.
It does put Republicans in an awkward position. On the one hand they oppose any tax increases for any reason, but on the other, it’s a stimulus move pitched by the President, which they also oppose.
According to TPM, the White House may try to replace the tax with other stimulus measures like infrastructure investments/improvements.
Still, as both sides argue about increasing taxes on the wealthy, both sides appear to be more than willing to let at least one tax increase happen.