COMMENTARY | I'm startled to think that our economy is so fragile that the end of payroll tax cuts could send us into another economic recession. But that's just what some economists believe.
I thought about how the end of the 2 percent payroll tax cuts will affect my family finances. According to experts, it's extremely unlikely White House will push for an extension of the payroll tax cuts, which were intended a temporary measure. It seems no one is really championing an extension of the tax cut, even though it especially helps the Generation-X middle class.
According to a recent article by the New York Times, Americans will most likely see a jump in their tax bill. The higher the income a family has, the higher the jump in taxes.
Saving more for taxes
I've already started putting more money aside for taxes. I am not expecting a tax refund. I pay quarterly taxes, but it's hard to estimate our annual tax bill since our income fluctuates. Experts say the typical American had $1,000 in additional income due to the lower taxes. Since both my husband and I have full-time jobs, I expect we will pay about $1,500 to $1,800 more in taxes thanks to the end of the payroll tax cuts. I based my estimations on a chart by CNN Money that looked at how much more a person will pay based on salary.
The purpose of the tax cut was to stimulate spending. Without a doubt, I'm spending more money, but it's not because I have an extra grand in my pocket. It's because the prices of food and other products are rising. In fact, a recent report from the Commerce Department reported in the Wall Street Journal showed personal expenditures rose a half a percent in August compared to the month before. I blame it on high gasoline prices. The national average retail price of gas, according to Wall Street Journal, went up 47 cent a gallon since July.
Letting Social Security suffer
Experts say the payroll tax cuts will undermine Social Security. In 2010, Social Security took in less money than it paid out for the first time in its 75-year history, according to an article by NPR. The payroll tax holiday reduced Social Security revenues by $105 billion. Perhaps legislators should brainstorm new ways to fund Social Security instead of relying on payroll deductions. A lot of people accuse politicians of "raiding Social Security" and worry about a shortfall.
Baby boomers will probably be affected most by the payroll tax cut as their Social Security check gets smaller and smaller. Meanwhile, most baby boomers I know can't make it now on their current Social Security checks. And, they are struggling to get rehired after leaving the workforce.
Many people in Generation X don't count on Social Security benefits. I'd rather have a payroll tax deduction now and manage my own money. For me, that means taking the extra $1,000 to $1,500 every year and funding our Roth IRA accounts. I think I'm a better steward of my own money compared to the government.
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