Roll Call: Latest News on Capitol Hill, Congress, Politics and Elections
March 2, 2015

The Tax Hike No One Noticed

Brad Plumer explains why the expiration of the payroll tax cut at the start of the year has not affected consumer behavior.

“One possibility is that many workers aren’t even aware that their taxes have risen yet… A full 48 percent of Americans haven’t noticed the change at all… In particular, low-income Americans were least aware of the change, with 59 percent not noticing any difference.”

“So what does this mean going forward? There are a few possibilities. 1) Once most Americans realize that their disposable income has shrunk — by $1,000 this year, on average — they could cut back on spending significantly… 2) Most Americans will continue to maintain their current levels of spending anyway, even though they have less take-home pay. They’ll simply borrow more to make up the difference… 3) People will eventually notice the payroll tax hike, but… the U.S. economy has reached escape velocity and the payroll tax hike can’t pull it back down.”

  • Gail Anderson

    It’s not a “tax hike,” it’s a return to the previous rate of taxation – which was never supposed to be permanent. *sheeeesh*

    • westvillage

      Exactly. And it’s $19/week on average — and of course the average wage earner will likely never notice, especially if they work a varying number of hours and overtime every pay period. Wonks are making too much of this one.

    • Lorehead

      So, rolling back the temporary Bush tax cuts wasn’t a tax hike either? You’re seriously going to go with this?

      • Golbez

        Well, Gail says it’s not a “tax hike.” But leaves room to acknowledge it is still a tax hike. It’s a weird game of semantics people play to deceive themselves (or others) that an expiring tax break is not a tax hike. If it’s not a tax hike, then it wasn’t a tax break either. Can’t have it both ways. Nor should you need to.

        • Lorehead

          It’s not a tax increase on the middle class, just the revocation of a tax cut, but letting the equally-temporary income tax cut for the 1% expire would have been a tax increase. Otherwise, her position would be indefensible hypocrisy.

          The previous talking-point was that this wasn’t a tax increase because the money went to pay for entitlements, but the Party flip-flopped back on cutting entitlements, so I guess they need a new excuse.

          • Yossi Gestetner

            So Bush never cut tax; he only revoked Clinton’s tax hike which was only a revocation of Reagan Tax Cuts which were only revocations of tax hikes…

          • Lorehead

            I think the current talking-point is supposed to be that it’s not a real tax cut if it has a sunset clause. But, like everything else in the Republican platform, it’s all up in the air. As with gay marriage, as with a path to citizenship, as with Medicare cuts, as with drone war, their principles are all subject to change from day to day. It must be hard to be a party-line Republican hack right now.

  • ralph_wiggam

    Plumer is forgetting another possibility, that the average rise in wages more than compensates for this return to former tax rates. In other words, the temporary tax cut did its job. Thats why no one notices.

  • Jon Lester

    I’m sure we all know people who are kind of oblivious with their spending habits.

  • Yossi Gestetner

    So Romney was right about the 47 (48…) percent

    • Simon Fields

      What do you mean? Payroll taxes may have been lowered, but people were still paying Payroll taxes, and state and local taxes. Romney was wrong (and oddly enough, he got 47% of the vote!)

  • hawkny1

    And the answer is……plastic! The – 2% change is buried in monthly negative balances which will not be felt until the Fall Back To School campaign is over.

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