The Joplin Globe, Joplin, MO

January 2, 2013

Payroll-tax increase cuts take-home pay for many

By Andy Ostmeyer

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.

Recession threat

The down-to-the-wire drama headed off an array of tax increases and spending cuts that were to take effect with the new year. Economists warned that the tax hikes and spending cuts would push the nation back into a recession unless Congress and Obama reached a deal.

Many of the tax cuts were first enacted under President George W. Bush. They lowered taxes for families at every income level, reduced investment taxes and the estate tax, and enhanced a number of tax credits, including a $1,000-per-child credit.

The new tax package increases the income tax rate from 35 percent to 39.6 percent on incomes above $400,000 for individuals and $450,000 for married couples. That number was a compromise, as some Republicans were opposed to raising any taxes at all, but Obama wanted to raise taxes on individuals making more than $200,000 a year and couples making more than $250,000.

Henkle said the day is coming when the hardware store will hit that $250,000 threshold. Because of the way the corporation is structured, it doesn’t mean the Henkles are taking that much money home, however. That income level for their business includes profits they will use to make payments on their buildings and buy inventory, for example, even though the money never goes into their pockets, Henkle said.

“You are not driving a Mercedes,” she said.

‘Quit spending money’

Ed Smith, manager of Midway Sheet Metal at 7700 E. 20th St., wasn’t happy with what he saw out of Washington in the weeks and days before the deadline.

“Lawmakers have failed miserably in terms of not getting along. ... Everything hinges around party lines,” he said Wednesday. “Their job is to take care of this country.”

He also disagreed with the decision to raise taxes on upper-income individuals and families.

“The appropriate thing to do would be to quit spending money we don’t have,” he said. “We need to do something in terms of deficit spending.”

Long said it was a tough issue for many in Congress. The compromise passed the House on a vote of 257-167. The Senate approved the measure on a vote of 89-8 less than 24 hours earlier.

Long said he voted “no” because the emphasis must be on cutting spending rather than increasing taxes.

Not only will taxes go up for upper-income Americans, but some spending is going up as well.

“There are all kinds of things in there,” Long said. “There are green programs. ... Hollywood producers got a benefit out of it. ... If you’re an algae grower.

“After two years of being up here (in Congress), I’m frustrated that every time — every single time something comes along — Congress won’t cut spending, the president won’t cut spending. Congress doesn’t even want to cut a hangnail.”

THE ASSOCIATED PRESS contributed to this report.

Jobless benefits

THE DEAL REACHED by Congress and President Barack Obama also would prevent an expiration of extended unemployment benefits for an estimated 2 million jobless in the United States.