The Payroll Tax Pinch

In General Interest by Jonathan Tasini0 Comments

To state the obvious, taxes hurt the most vulnerable more than the rich — even if the rich squeal (see: Phill Mickelson). No better example on this point is the payroll tax, which, when most or all of your income comes from wages (as opposed to investment income, which is where most of the wealth and income for the rich comes from), is really felt.

So, when the temporary payroll tax cut expired, it hurt:

Like millions of other Americans, they are feeling the bite from the sharp increase in payroll taxes that took effect at the beginning of January. There are growing signs that the broader economy is suffering, too.

Chain-store sales have weakened over the course of the month. And two surveys released last week suggested that consumer confidence was eroding, especially among lower-income Americans.

While these data points are preliminary — more detailed statistics on retail sales and other trends will not be available until later this month — at street level, the pain from the expiration of a two-percentage-point break in Social Security taxes in 2011 and 2012 is plain to see.

There is a larger point here. When you take money out of the pockets of regular people, it hurts the economy and society as a whole — people who take home less money won’t spend it. Which was also a point made by many of us who advocated for focusing on jobs, not the phony deficit and debt “crisis”– give people jobs and they have money and then they can use that money.

All this is simple and obvious economics, which, then, makes it abundantly clear that all the other foolish talk of tax cuts, spending cuts and deficits is just politics and a windfall for the rich, not smart economics for the people.

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