The Joplin Globe, Joplin, MO

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January 2, 2013

Payroll-tax increase cuts take-home pay for many

JOPLIN, Mo. — Unless you get a raise in pay with the new year, the take-home pay in your next paycheck will be smaller, and so will the paychecks after that.

That’s because legislation that Congress approved Tuesday extended numerous tax breaks, but it did not extend the reduction in the Social Security payroll tax that Americans have seen the past two years.

Social Security is financed by a 12.4 percent tax on wages up to $113,700, with employers paying half and workers paying half. President Barack Obama and Congress reduced the share paid by workers from 6.2 percent to 4.2 percent for 2011 and again in 2012 to stimulate the economy.

While the extra money was welcomed by Americans — that cut in the payroll tax was worth about $1,000 to an employee making $50,000 a year — it was never fully embraced by either party. This time around, there was enough agreement to let it expire.

Cris Henkle, co-owner with her husband, John, of Henkle Ace Hardware, 1201 S. Madison St. in Webb City, said the payroll-tax reduction was never a good idea to start with, given the funding shortfall that will soon hit Social Security with so many baby boomers retiring.

“I don’t think it ever should have been put into effect,” she said. “It was a foolish thing to do. We were given a reprieve, but really it is something we should have been paying.”

And now that workers have had two years to get used to it — the hardware store employs between 10 and 12 people — they won’t welcome the bite out of their take-home pay.

“It is always a pain to take things back once you have given them,” Henkle said.

She said the reduction in take-home pay might affect some retailers, but she doesn’t expect it to hurt her hardware business. In fact, during hard times, there are more do-it-yourselfers who seek out businesses such as hers for parts, supplies and advice.

“For our store, normally we are fairly recession-proof,” Henkle said. “I can see other retailers — luxury items, clothing — I can see where they are going to have some issues.”

U.S. Rep. Billy Long, a Republican who represents Southwest Missouri, on Wednesday said the payroll-tax increase will be the first thing Americans notice about the deal that was worked out between Obama’s team and congressional leaders. He said he agreed with the decision to restore the full tax, noting that the two-year tax cut was akin to robbing Social Security when it, too, is going broke.

“That was never intended to be permanent,” said Long, who voted against the “fiscal cliff” bill.

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