Like a very, very long episode of the TV series 24, the White House website’s We Can’t Wait clock ticks down. The clock, which displays the amount of time left before the current payroll tax cut expires, is meant to apply pressure on Congress to extend the current tax cuts or, possibly, increase them.
It’s a clever tool for the White House’s argument — it even includes a handy embed button to share your countdown tension with your friends and neighbors — and it’s aimed squarely at the political battle over the fate of the tax.
President Obama and Democrats are daring Republicans to let the tax break expire. And Republicans are demanding cuts in government spending part of their requirement to extend it. It’s a high-stakes political fight going into an election year. But there is also the more basic question of the tax cut itself.
Just what is the significance of the 2 percent tax cut? It’s tempting to say the significance is simply 2 percent of your income. In reality, though, the answer is a lot more complicated. It depends on what kind of money you make and where you live, but the stakes for the entire U.S. economy look significant.
2 Percent Isn’t Always Just 2 Percent
If you want a basic measure of what the expiration of the tax cut means to you, again the White House is happy to help. They offer a calculator where you enter your household income (you and your partner if you file jointly), click a button and, voila, your own little slice of economic pain.
The math isn’t hard. It’s 2 percent of what you earn. That’s the source of the $1,000 tax break number that is being thrown around since the median household income in the United States is roughly $50,000. But of course the number could be much higher. Maybe you and your spouse each make $100,000. That would be a much bigger $4,000 hit.
And beyond the countdowns and calculators, the increase in the payroll tax could hit the U.S. economy hard in two different ways when you look at the impacts using Patchwork Nation’s breakdown of 12 county types.
Impact of 2% Payroll Tax Increase per Household in 12 Community Types
|Community Type||Median income||Impact of 2% on Median Household|
|Campus and Careers||$50,628||$1,013|
Source: U.S. Census, 2009 figures
First, there are the effects at the household level.
In the nation’s wealthier places, like the Monied Burb counties, a 2 percent hike might not send people into the poorhouse, but consumer spending in those places would probably drop. The hike would equal a hit of $1,296 for the median household income in the Burbs.
In some places it would be a lot more. Consider counties like Loudon County, Va., or Douglas County Colo., where the median household income is above $100,000. In both those counties, the hit would average $2,000 a home*.
And in the poorer places in Patchwork Nation that are still not really sniffing the recovery, such as the Minority Central and Service Worker Center counties, the increase could push struggling families over the line. For many in those places, it’s not just about the impacts to the broader economy, it’s about survival – pulling $750 to $850 away from a household could cause serious hurt.
What About Your County?
But beyond those individual concerns, which are not unimportant, there are the broader compounded effects on communities – and in many ways they might be bigger.
What happens when you pull $1,200 away from this set of households and $750 away from that one? You get a massive impact. Look at the map below to see the total estimated impact in every county of letting the payroll tax cuts expire.
In Lincoln County, a small town Service Worker Center in Oregon that Patchwork Nation has visited repeatedly, it would mean pulling $15 million out of the local economy annually. As we have noted is past reportage, Lincoln has struggled during the recession and that would be a very big hit for the county to absorb. The unemployment rate for the county is still above 10 percent.
And in wealthy, more-urbanized counties, the problems would be magnified not only by higher incomes, but by population density. So in, say, wealthy Montgomery County, Pa., with a median household income of $74,000 and 298,000 households, the net impact would be a loss of $446 million in income.
While people in Montgomery are generally doing OK during economically at the moment – the unemployment rate there is about 6.5 percent – that is a lot less money coming in. And ultimately that would likely have a big effect on the region as a whole. It would mean less money spent at local restaurants, cafÃ©s and shops.
Now imagine that happening in well-heeled suburbs around the country – outside Chicago, Cleveland and Denver. The Monied Burbs would lose some $33 billion in net income if the payroll tax cuts expire.
The point? The White House clock on the payroll tax break expiration is dramatic and the politics are entertaining, particularly going into and election year. But the real story is about more than politics. And after years of rough economic times and finally, a flicker of hope in some economic measures, the stakes are high.
- An earlier version of this post had an incorrect estimate