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· December 12, 2012

Failure to extend the payroll tax cut will shrink Ohio paychecks and slow economic growth

In all recent coverage of the fiscal cliff at IO, our sister organization, IO Ed Fund and elsewhere, one important detail has gotten relatively little notice. President Obama’s proposal to Congressional Republicans includes a one-year extension of the payroll tax cut enacted in 2010. Without an extension, payroll taxes will go up at year end, meaning workers will see less in paychecks starting in January. The proposal is good news for the economy and for working Ohioans who will take home — and most likely spend — $525 more on average as a result. According to the Center on Budget and Policy Priorities, below is the impact of the tax cut on various professions: With no extension, lawmakers will place a significant burden on an economy struggling to grow. Today, Moody’s Analytics released its outlook of the U.S. economy for 2013 and noted that one of the major headwinds that the economy could face is the expiration of the payroll tax cut. Moody’s estimates that allowing the tax cut to expire will cause the economy to shrink by .6 percent in 2013. As the Center for Budget and Policy Priorities wrote last week, over 150 million workers — including 5.7 million in Ohio — will see some benefit if the payroll tax cut is extended. Those estimates are based on 2010 and 2011 employment numbers, so the number in 2013 is likely even larger. Because the president’s proposal makes the tax cut temporary, an extension won’t add to budget deficits permanently. Compared to extending the Bush tax cuts for high-income taxpayers which could add $1 trillion to the debt over ten years — and not offer much in the form of economic stimulus –extending this tax cut is a relative bargain. Extending the payroll tax cut is an important policy that will get more money into the hands of Ohioans to help stimulate the economy in 2013 and is a policy that both sides should support.  

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