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The Expiring Payroll Tax Holiday

In 2008, many people received a stimulus check [3] of a few hundred dollars. In 2011, many people got a payroll tax holiday [4] instead of a check in the mail. There wasn’t a lot of news made about the payroll tax holiday but it’s almost as big of a “stimulus check” as the first stimulus check.

Surprisingly, based on how it was structured, the more you made, the more of a holiday you got because it was based on a percentage of your payroll taxes. When the “deficit supercommittee” failed [5] to reach an agreement yesterday, that payroll tax holiday was put in jeopardy. You see, it’s set to expire at the end of the year and people expected the supercommittee to address that. As it stands, they’ve addressed… well, nothing. 🙂

Why is this a big deal? With the payroll tax holiday, everyone’s paycheck just got a little bit bigger – an average of $934. When you get a check for $300 – $1200, it’s easier for you to decide whether to spend it or save it. When you get $934 trickling in your paycheck over the course of the year, there’s no decision to make. Your paycheck is just a little larger and so you’re more likely to spend it because you don’t get the opportunity to look at a large sum and say – “Hmmm, I want to save this.”

In essence, it’s a better stimulus than a single check because people aren’t put to a decision as to what they’re going to do. A little extra money means their wallet is fatter, their account balance is larger, and maybe they aren’t as frugal as they would be if that balance were smaller.

Unless something is done to address it, it’ll end after this year.