For millions of American workers, this past Friday was the first pay day of 2013, and I suspect quite a few folks took a look at their check and noticed it seemed a little lighter than usual.
As Neil Irwin explained, it's not your imagination -- your paycheck is a little smaller because the payroll tax break that was in effect in 2011 and 2012 expired on New Year's Eve.
For all the self-congratulatory back-patting from the White House and Congress on the deal that averted the "fiscal cliff" of tax increases -- the deal locked in the George W. Bush-era tax cuts for households making under $450,000 -- they tended not to mention what the deal did, or rather didn't do, on the payroll tax. A 2 percentage point reduction in the Social Security tax, which hits all American workers, had been enacted at the end of 2010. In the fiscal cliff deal, Congress and President Obama neither extended it further nor agreed on any other policies that might have the similar effect of leaving more money in workers' pockets.
The numbers, for anybody who hasn't checked their paycheck yet (or won't get paid in 2013 until later in the month): For someone who makes the U.S. average for private sector workers of $818.69 a week and is paid every other week, that adds up to a reduction of $32.75 in each paycheck. For higher earners, anyone making over $113,700 annually, each bi-weekly paycheck will decline by $87.46.
When middle-class workers saw their pay stub on Friday, I suspect many of them thought, "Hey, I thought the middle class had been shielded from tax increases? I don't make anywhere near $450,000." There are, however, different kinds of tax breaks -- income tax rates on the middle class were locked in place, but the payroll tax break expired.
The timing is hardly ideal -- it decreases consumers' buying power -- and economists project the expiration of the payroll break will undermine economic growth a bit in 2013.
Which leads to a separate question: who's to blame for the policy's demise?
It's true that some Democratic congressional leaders were skeptical of keeping the policy in place. Payroll taxes finance Social Security, and though the money was being replaced by the general fund, Dems were reluctant to make a habit of this practice, so as to preserve the integrity of the Social Security system.
But it was congressional Republicans who really wanted the payroll break to end. GOP lawmakers opposed the policy when it was approved in 2010 -- Obama had to fight tooth and nail to get it passed two years ago -- and when it came time for the recent round of fiscal talks, Republicans made clear from the outset that they had no interest in keeping the payroll policy in place any longer.
House Speaker John Boehner (R-Ohio) made this abundantly clear throughout the negotiations.
By all accounts, President Obama was on board with extending the break, but wasn't in a position to fight for it -- he could get Republicans to budge on extended unemployment aid, but not another payroll tax cut. (Some on the right are trying to pin the break's demise on the White House, but that's plainly foolish.)
So, if you're wondering what happened to your paycheck, now you know.