The NY Times is out today with another story on the deleterious impact that the expiration of the payroll tax holiday is having on the lives of US Citizens, particularly the middle class. Anecdotal evidence is presented that clearly demonstrate the changes in spending patterns that the citizenry is feeling forced to make in order to make up for this change. Beyond the idiographic evidence, the NYT cites the Michigan Consumer Sentiment survey results which clearly show a significant trend break in the January data:
When asked how their financial situation had changed in January, 32 percent of people with incomes below $75,000 said their pay had dropped, compared with 13 percent who said it had increased. By contrast, 38 percent of people earning more than $75,000 said their wages had gone up last month, and 23 percent said they had gone down.
Perhaps most telling was the quote from Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, “if you wanted to design a policy to squeeze the spending of lower- and middle-income households, raising the payroll tax is the way to do it.”
How unfortunate that both parties were so short-sighted in under-estimating the impact of this move. If only someone on their staff read my blog!
Most of the smart people I talk to think that the answer to this issue is to lower the social security tax rate and remove the salary cap (currently $113,700). I think the concern around removing the cap on salary would require a similar adjustment to the cap on social security benefits in retirement. Those who pay more would certainly demand to receive more which seems like a reasonable position to hold.