End of Payroll Tax Holiday Could Impact Mid-Michigan
Reaching a fiscal cliff deal didn't stop the end of the payroll tax holiday, meaning everyone will see their payroll taxes go up by 2%. Video by fox47news.comvideo
"For the moment we have avoided the worst of the fiscal cliff, which probably would've put the country into a recession within a couple of months," said MSU Economics Professor Charles Ballard.
However, something separate from fiscal cliff negotiations is the end of the payroll tax holiday. That means everyone with a paycheck will see their payroll taxes go up from 4.2% to 6.2%. For the average wage earner making $41,000 a year, that's essentially a pay cut of $16 per week.
Ashley Samson from the Center for Financial Health in Lansing helps low to moderate income families create balanced budgets. She expects many mid-Michigan families will have to rethink their spending plan as an extra 2% of their pay slips away in federal taxes.
"These budgets are stretched so thin for a lot of these families that any decrease in take home pay is going to have a very large impact on their overall financial health," said Samson.
Experts expect the economy can withstand the payroll tax cuts and say tax hikes and/or spending cuts are inevitable.
"We're running big government deficits so we know we can't continue to do that forever, we've got to either raise taxes and/or cut spending. But the problem is if you do that too fast, if you really slam on the breaks as the fiscal cliff would've done, that has real potential to push the economy back into recession," Prof. Ballard said.
It seems Congress found a moderate solution for now, but many families may still feel the pain and negotiations in Washington are far from being over.