This morning, thousands of Americans took to Twitter to ask #WhyIsMyPaycheckLessThisWeek. It’s now a trending topic.
There’s an actual answer to this question of why paychecks are lighter today: the expiration of the payroll tax holiday that went into effect on January 1, 2013.
Unfortunately, the majority of the tweets in question contain answers culled from the feverish imaginations of the most vitriolic Fox News anchors and radio shock jocks. Illegal immigrants are to blame. Obama voters. Welfare recipients. Women who want birth control. Over 500 (and counting) Twitter users blamed an expensive jacket Michelle Obama wore to meet the queen of England.
The expiration of the payroll tax holiday obviously has nothing to do with any of these things. It’s a result of the horse-trading in Congress, the lack of attention to job-creating policies that help workers pay their bills, and devotion of Republicans and some Democrats to “cutting spending” while protecting the interests of their wealthy and corporate sponsors.
Here’s why your paycheck is less this week:
The payroll tax holiday, which lowered your paycheck deduction to Social Security from 6.2 to 4.2 percent, was passed in 2010. As Matt Yglesias describes, the 2009 Recovery Act contained a similar measure that Republicans didn’t want to extend “mostly because it was too closely identified with Obama.”
On December 18, 2011, with the holiday set to expire at the end of the year, House Republicans revolted at the idea of extending the tax holiday for two months, even though the Senate had passed it in a bipartisan measure (89 voted “Aye”).
A two-month extension was not ideal. It would’ve been a year-long extension – many, particularly President Obama wanted it – but Tea Party Republicans didn’t want to pass it without equal offsets somewhere else.
Speaker Boehner initially caved to the Tea Party (shocking!) and rejected the two-month deal, leading a Senate aide to tell the Huffington Post “Boehner is not riding this tiger; the tiger is riding him.”
Eventually on December 22, 2011 after public outcry, House Republicans caved and voted to extend the payroll tax cut, nine days before it was set to expire. On February 18 2012, both the House and Senate voted to extend the holiday to the end of the year, without paying for it, which further angered the Tea Party faction.
But then at the end of this year: Fiscal cliff! Taxmageddon! The Bush tax cuts of 2001 and 2003, which had done zilch for 98 percent of Americans, were set to expire, along with several other policies. Republicans, for the most part, were intent on keeping those cuts for the richest 2 percent of Americans – otherwise, they’d be breaking their infamous pledge to Grover Norquist. President Obama, for his part, had just been reelected in a landslide, saying an infinite number of times he wanted those who earned $250,000 or more a year to pay more in taxes – voters wanted it! These election results convinced some Republicans a compromise was needed, but most stayed loyal to Norquist and other sponsors.
As you know, there were many offers and counter-offers between the White House and Speaker Boehner. The initial offer from Obama contained the payroll tax holiday extension, along with infrastructure funding, mass mortgage refinancing, an extension of unemployment benefits, and a host of business tax cuts called extenders. All stimulus measures, all stuff workers in this country desperately need.
The response from Republicans? Absolutely not. Why? Because the initial offer didn’t extend the Bush tax cuts to the wealthiest 2 percent.
Through the next series of offers and counter-offers, the payroll tax holiday was dropped as a concession. Let me clarify – it was a concession from Obama to House Republicans, because of the desire not to raise taxes on the wealthiest 2 percent, and the desire to cut spending.
Put another way: That thing that made your paycheck bigger over the past two years is part of the “spending” that House Republicans kept talking about their desire to “cut.”
(Also, this concession was predicted as early as September 2012, before we knew who would win the election.)
See this chart? The green part contains payroll tax holiday, part of “stimulus and tax extenders.” Notice whose offers contain green and whose don’t.
The final deal let the Bush tax cuts expire only for those making $400,000 and above. If you make between $250,000 and $400,000 a year, congratulations! You dodged a bullet, and by “bullet” I mean paying the tax rate you did under President Clinton. But as part of your bullet-dodging, and as part of the House Republicans’ slavish devotion to Grover Norquist’s anti-tax pledge, and as part of the ridiculous process that lead to this last minute “fiscal cliff” deal in the first place, the payroll tax holiday was traded away and paychecks for every American who works for a living shrank this week.
And that’s why your paycheck is less. Not Michelle Obama’s coat, not immigrants, not unions, and not stories about free “Obama phones” you read on the Internet.
That’s the short answer, anyway.