Changes to tax laws that took effect on Jan. 1 will add 2 percent to your paychecks during 2011. As the Making Work Pay Credit is phased out, the employee’s Social Security tax rate will fall from 6.2 percent to 4.2 percent, and your next paycheck will likely be 2 percent larger.
The year-long tax change will benefit most employees except federal employees hired before 1984 and those earning less than $20,000 a year. It’s all a calculated attempt by lawmakers to stimulate retail spending and bolster the fragile economic recovery that appears to be underway.
“Theoretically people will have more disposable income, so they can spend more on retail or other services,” Ben Stone, director of the county Economic Development Board, said in an interview with The Press Democrat’s Nathan Halverson. “But it’s hard to know exactly what will happen. People have different schools of thought on it.”
In effect, it’s a stimulus package that’s cloaked as a tax benefit, and that’s made the move controversial. Unless the economy’s dramatically better as we move into 2012, it’ll be politically difficult to rescind the tax decrease – even if it is borrowing funds from Social Security. Workers like pay increases, but they’ll probably like next year’s pay decrease even less.
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