Skip to: Content
Skip to: Site Navigation
Skip to: Search


Tax VOX

Just how big is the payroll tax cut?

The payroll tax cut extension will save workers a total of $114 billion this year. That means an average cut of $714 per worker, though some will take home more (and some less).

By Roberton WilliamsGuest blogger / February 21, 2012

House Budget Committee Chairman Rep. Paul Ryan, R-Wis., left, and Rep. Jeb Hensarling, R-Texas walk to the House floor on Capitol Hill in Washington Friday for the final vote on the payroll tax cut extension. The extension in the payroll tax will save the average worker $714 this year, according to the Joint Committee on Taxation.

J. Scott Applewhite/AP

Enlarge

The 2-percentage-point payroll tax cut extended by Congress in December and again last week will save workers a total of $114 billion this year, according to the Joint Committee on Taxation. Spread over nearly 160 million workers, that’s an average tax cut of $714. Yet the typical news report says “the average worker earning $50,000 [will] take home an extra $1,000.”

Skip to next paragraph

The Tax Policy Center is a joint venture of the Urban Institute and Brookings Institution. The Center is made up of nationally recognized experts in tax, budget, and social policy who have served at the highest levels of government. TaxVox is the Tax Policy Center's tax and budget policy blog.

Recent posts

That’s a big difference. What’s going on?

The calculation implicit in the news report is simple arithmetic—2 percent of $50,000 is $1,000. But the average worker earns much less—just under $40,000 in 2010, according to the Social Security Administration. That suggests that the average tax saving would be about $800, still more than $714.

The remaining difference results from the Social Security tax cap–$110,100 this year. Since incomes over the cap go into the overall wage average, the average wage subject to the Social Security tax is less than the average for all pay, roughly 10 percent less.

But TPC estimates that the average tax reduction will total $921, well above the average worker’s savings. That’s because TPC looks at tax units—individuals or couples who file tax returns (or would if their incomes were high enough). And TPC leaves out dependents and hence misses the tax savings for many younger workers. Tax units are similar to both families and households but not the same as either.

So here’s the bottom line (or lines):

  1. Nearly 160 million workers will take home an average of $714 more during 2012.
  2. About 122 million tax units will save an average of $924 in payroll taxes.

Only above-average workers will get the $1,000 repeatedly promised in the media.

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on taxvox.taxpolicycenter.org.

  • Weekly review of global news and ideas
  • Balanced, insightful and trustworthy
  • Subscribe in print or digital

Special Offer

 

Editors' picks

Doing Good

 

What happens when ordinary people decide to pay it forward? Extraordinary change...

Endeavor Global, cofounded by Linda Rottenberg (here at the nonprofit’s headquarters in New York), helps entrepreneurs in emerging markets.

Linda Rottenberg helps people pursue dreams – and create thousands of jobs

She's chief executive of Endeavor Global, a nonprofit group that gives a leg up to budding entrepreneurs.

 
 
Become a fan! Follow us! Google+ YouTube See our feeds!