Charleston-area workers cope with end of 2-year tax cut

  • Posted: Monday, January 14, 2013 12:20 a.m., Updated: Monday, January 14, 2013 12:32 a.m.

Editor's note: One in an occasional series about helping the middle class deal with the struggles of today's economy.

Stuck in the middle

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Wendy Bailey of Goose Creek brought home less money in her paycheck last week, and the result is going to be more nights spent at home.

She's one of an estimated 160 million people across the country who will have lighter pocketbooks this year due to the end of a two-year cut on payroll taxes.

“I wasn't prepared for it,” said Bailey, who works in a medical office. “I didn't know it was coming, but it was big enough of a hit that I am going to have to refigure my budget.”

The tax went back to 6.2 percent from 4.2 percent — cutting income by almost $1,000 for families who bring home $50,000 annually.

“It basically amounts to working a week without pay, but a part of it comes out of each paycheck,” said James Mackey of Charleston, who works in construction. “It's like a slow leak.”

The temporary tax cut lowered workers' tax rates in 2011 and 2012 on wages up to $110,000, but the tax holiday ended on Dec. 31.

It gave people a few extra dollars of spending money each month.

“I don't even really remember when this went into effect,” said Bailey. “I feel like my income has stayed the same for several years. Even if I do get a small raise, it seems like it always gets taken away in higher expenses.”

She said she will have to lower her discretionary spending.

“I guess I'll be shopping less, going out less,” she said. “My bills won't go away so I'll have to find the money somewhere. I'll just have to make do with less.”

Holly Beth Conway agreed.

“(That's money) I don't have to spend in the economy, put gas in my tank, feed my children or save for my future,” she wrote on The Post and Courier's Facebook page.

Instead of finding its way into the pockets of consumers, the money will go to Social Security, which appears on paycheck stubs as FICA-OASDI or “Federal Insurance Contributions Act-Old-Age, Survivors, and Disability Insurance.”

On top of that, income tax withholding increased slightly this year, and some workers are paying higher rates for health care. Companies have until Feb. 15 to make the tax adjustments.

Depending on the pay cycle, taxpayers may have already noticed the decrease.

Roper St. Francis Healthcare's 5,200 employees, who are on a two-week cycle, saw the Social Security cut on Jan. 4 and will get the higher withholding adjustment in the coming weeks.

To warn employees, the payroll and human resources department sent out an email on Jan. 2 and posted notices in buildings. They received about two dozen calls with questions, said spokeswoman Kim Keelor.

Some economists argue that the money — about $95 billion in 2013 alone — is better off in taxpayers' pockets, where it can help stimulate economic recovery, according to The New York Times.

The Washington-based research group Economic Policy Institute has said the cut has a stronger stimulative effect on the economy than many other tax cuts because the households that receive it tend to spend the money rather than save it.

The economy hasn't strengthened significantly in the last two years, and the hit could push the country into a recession. The Federal Reserve currently estimates that the economy will grow 2.5 to 3 percent next year and that the unemployment rate will be 7.6 to 7.9 percent. EPI estimates that the tax cut's expiration could erase 0.9 percent of economic output and put up to a million jobs at risk, according to the Times.

Last year, the White House pushed for an extension of the tax break.

“For the typical American family, it is a big deal,” President Barack Obama said. “It means $40 extra in their paycheck. And that $40 helps to pay the rent, the groceries, the rising cost of gas.”

Mackey said he has to agree with Obama.

“He's right in this case,” he said. “That money may not seem like much to many people, but with the way the economy is, every little bit helps. Most of us are still hurting, and to lose some of it, well, it's not going to be easy.”

Reach Brenda Rindge at 937-5713 .

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