Obama’s Payroll Tax Cuts and You

7 DEC 2010 — BBC NEWS reported yesterday that President Obama has agreed a deal with the Republican Party to extend Bush era tax cuts for all Americans regardless of income level. Of interest in today’s column is the proposed 2% cut in the payroll tax for 2011.
When journalists talk about a “payroll tax”, they’re pointing towards your Social Security contributions. Currently, Americans put 6.2% of their earnings into the system, but under the proposed cuts their contributions would be reduced to 4.2% of pay. In real numbers, the New York Times reports that a family earning $50,000 per year would save $1,000.
But you won’t get your savings all at once. Instead, it will be doled out in smaller sums over the course of the year in what amounts to a slightly bigger paycheck. Why? NPR’s news blog “the two-way” thinks these regular cash injections will encourage you to spend more at the shops and restaurants, whereas most lump sums are simply used to pay down debt or squirreled away for better days.
Basically, the government wants to put more money in your pocket so that it’ll burn a hole there. They’re willing to swap a portion of their annual revenue for a consumer-led boost to the economy. Problem is, this only works if you keep your end of the deal – by spending your extra cash on nice meals, electronics, maybe even a new car. But if you do end up getting that money, what should you really do with it?
Well, paying down debt is always good. It’s illogical to grow your low-interest savings account when you’re losing money out the nose on debt interest. But if you don’t have enough money saved up to be safe during emergencies, do fill that up first. Still, don’t be afraid to spend a little bit here and there on your hobbies or on entertainment. After all, we are a consumer culture, and when we can’t consume we go a little bonkers (at least I do).

The Solvency Shark will keep you updated on any new developments as this proposed deal moves forward; Obama’s compromise with the GOP still needs to be voted on by Congress and may not be able to run the gauntlet without a few changes. Truth be told: I just want my thousand bucks.

Live well, live well within your means, and remember – that’s how the Solvency Shark seas it!

Stewart Pelto

Stewart Pelto

Stewart Pelto is a recent graduate from the University of North Carolina at Chapel Hill. He is now the proud recipient of a Master’s degree in French Literature – a degree that honed the same researching and writing skills he uses to write informative articles today. While pursuing this degree, he taught French courses to undergraduate students for two years. What he enjoyed most about the position was the challenge of making difficult concepts readily understandable and accessible to all.

He served as a Senator for the Graduate and Professional Student Federation, fighting to keep tuition costs down for graduate students struggling with their finances and student loans. He also developed his budgeting skills during his time as a Treasurer for the Graduate Romance Association. He enjoyed becoming more active in his local community and working to make a positive effect on his surroundings.

While an undergraduate himself, he spent a year abroad in Europe earning his degree in Spanish and French. While studying in both Sevilla, Spain, and Montpellier, France, he was exposed to the everyday reality of living under different economic and financial systems. Among other interesting travels he has made is a financial pilgrimage to the Spanish stock market in Madrid.

Stewart Pelto brings his rigorous academic education and his international experience to the problem of raising credit awareness and promoting financial responsibility. He hopes that his articles will teach his readers about debt and credit in an easily accessible and readily understandable way.
Stewart Pelto