A Boost in Your Paycheck: How Are U.S. Workers Using the Payroll Tax Cut?

Grant Graziani, Wilbert van der Klaauw and Basit Zafar

No 20120509, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Over the past several months, there was a flurry of debate in Washington over the extension of the payroll tax cut. Many supporters of the tax cut?worth about $1,000 to a family earning the median income of slightly more than $50,000 a year?have cited its importance to the nation?s economic recovery, while opponents claim that it will only add to the national deficit without boosting the economy. Exactly how such a tax cut affects the aggregate economy relies heavily on how U.S. workers use the extra funds in their paychecks. Unfortunately, we know little about how such tax cuts are used by workers. So we decided to ask them and, in this post, report the answers they gave us.

Keywords: Payroll Tax Cut; Marginal Propensity to Consume (search for similar items in EconPapers)
JEL-codes: D1 H00 (search for similar items in EconPapers)
Date: 2012-05-09
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