My Two (Per)cents: How Are American Workers Dealing with the Payroll Tax Hike?

Max Livingston, Wilbert van der Klaauw and Basit Zafar

No 20130515, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: The payroll tax cut, which was in place during all of 2011 and 2012, reduced Social Security and Medicare taxes withheld from workers? paychecks by 2 percent. This tax cut affected nearly 155 million workers in the United States, and put an additional $1,000 a year in the pocket of an average household earning $50,000. As part of the ?fiscal cliff? negotiations, Congress allowed the 2011-12 payroll tax cut to expire at the end of 2012, and the higher income that workers had grown accustomed to was gone. In this post, we explore the implications of the payroll tax increase for U.S. workers.

Keywords: payroll tax hike; marginal propensity of consumption; consumer response (search for similar items in EconPapers)
JEL-codes: D1 H00 (search for similar items in EconPapers)
Date: 2013-05-15
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