President Obama's payroll tax cuts may mean extra money for you

President Obama's payroll tax cuts may mean extra money for you


6 News Reporter

KNOXVILLE (WATE) - The debate over the president's tax cut deal continues in Washington.

In addition to extending the Bush tax cuts for two more years, it would also extend unemployment benefits for tens of thousands of Americans still out of work.

It would also cut payroll taxes, and that would mean extra money in your pocket.

Some economists say President Obama's proposed payroll tax cut has been called another type of stimulus package.

One of those economists is Dr. Bill Fox, the director of the Center for Business and Economic Research at the University of Tennessee.

"Most economists do expect some stimulus from this plan," said Fox. "The down side of course it drives up the deficit which is already a serious problem."

President Obama is proposing to lower the payroll Social Security tax from 6.2% to 4.2% for the next two years.

For a family with an income of $50,000 a year, this translates to a savings of $1,000 a year, or $20 a week.

"Temporary reduction in taxes, so you get that extra $1,000, some people will spend it," said Fox. "I'm no means suggesting no people will spend it, but there is a tendency when people get that extra $20 a week . . . they will take it to pay down the Visa bill a little bit more or save a little bit more rather than spend all that."

We stopped by Handmade Holiday Trunk Show in Market Square to see if consignment shop owners there would save or spend. Their reaction was mixed.

"Spend it," said Trish Warwick of Knoxville. "We would end up spending it, unfortunately, but every single cent counts at this point."

"I'll save it," said Amber Crouse of Knoxville. "I'm not a big consumer. I don't need more stuff."

"I think it would depend on what was going on at that moment," said Kimberly Woods of Knoxville. "I think times are changing, changing fast."

Fox says new jobs are what the economy really needs, and he says these tax cuts will not help accomplish that.

"My advice to people always is to make sure you own financial house is in order and don't spend the money for sure unless you can afford it," added Fox.

Business owners would get an even larger break with President Obama's proposal. They usually pay a comparable amount of Social Security tax in addition to what their employees pay.   

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