By now, everybody is aware that the debt deal passed. I always figured it would and that it would take until the last minute. It’s just how things get done, especially in today’s ultra-partisan government.
One of the things that it included means that anybody that works should be prepared for a 2% pay cut starting next year.
Simple. The FICA payroll tax holiday, where taxes were rolled back by 2% for 2011, have virtually no chance of being renewed under the agreed terms. Although it was only a one year agreement originally, the hope was that it would be able to be extended for at least another year (hmm, just up until elections, how convenient would that have been?).
This could end up being a problem for many. Smart people with the means to do so took the 2% and just stashed it somehow, whether it be through increased retirement savings or some other way of socking it aside. But, my guess is that the vast majority of people incorporated it into their everyday budget, which will make it much more difficult to take out come that first paycheck of 2012. For that reason, I never thought much of the payroll tax holiday, simply because, as the ‘temporary’ Bush tax cuts proved, once you put money in people’s pockets, there’s going to be some major protesting when you try to take it back.
So, if you’re lucky enough to get a raise before the end of the year, you should knock off 2% of whatever you get, because that’s going to be going away within a few months.
Personally, I’m not sure how it will play out. We haven’t gotten raises in the last two years, and there’s hope that it will finally be the year where raises are awarded, though I’m guessing it won’t be more than 3%, which would effectively work out to zero since I hope to bump up my 401(k) contribution by 1% when a raise eventually happens.
For us, it will also depend on health care. Our ‘holiday’ essentially went to paying higher premiums that were jammed down our throats in 2011. Knowing that we were having a baby, we ended up selecting a plan that had higher premiums. With no planned babies (and hopefully no major health care expenses) in 2012, we are hoping to select a plan that would cost us a little less, which could help offset the 2% holiday expiration.
This doesn’t even touch on the possible impact to the economy, as the ‘holiday’ was designed to increase consumer spending, and even that hasn’t really been too solid this year. It seems a foregone conclusion that we’re headed towards a double-dip recession, and this certainly will not help make that any easier.
How will the resumption of the 2% FICA tax impact you? What do you think it means to the economy?