Now that the budget deficit super committee has punted on reducing the rate at which the nation accumulates debt, attention turns to two pressing issues that could have a big impact on economic growth here in the U.S. beginning in less than 40 days – the expiration of the payroll tax cut and extended unemployment benefits. In this story at the New Jersey Star Ledger, the impact of the former is detailed.
Letting the Social Security stimulus expire now would result in a tax increase equal to 2 percent of payroll on most people. Check the accompanying chart from the Center on Budget and Policy Priorities to see the impact on different workers. A typical truck driver would lose nearly $800 for example, while a plumber would lose $1,000.
Because people would have less to spend, the economy would grow more slowly. Goldman Sachs estimates it would shave two-thirds of a percentage point off the GDP.
Once everyone gets back from their Thanksgiving break, look for the debate to heat up again, though, a repeat of last December’s stunning $860 billion stimulus/tax cut deal doesn’t seem likely this year due to political considerations on both sides.