Will Voters Even Notice the Payroll Tax Break?

Obama's new tax cut deal will reduce payroll taxes on Social Security and Medicare. But will the voters notice the income boost?

On Tuesday, President Obama gave a press conference where he exonerated his left wing base for holding him to unrealistic expectations, arguing that they ignored his ability to produce policy victories. One can't help but notice a similarity with the new payroll tax holiday in the new tax-cut compromise. The proposal reduces payroll taxes on Social Security and Medicare from 6.2% to 4.2%. The experts that FrumForum spoke to said that this policy will provide real and tangible benefits. It’s not clear that voters will recognize this.

The effect of this payroll tax holiday is that everyone can now assume that their income will increase by 2%. If you made $70,000 a year, you will gain an additional $1,400. This benefit will permeate throughout the entire economy and will also be felt more strongly by those in lower income groups. For them, a 2% increase in wages can be more strongly felt.

In addition to having a stimulative effect at the micro level, in aggregate, the tax holiday could also provide a significant boost to the economy. Business Insider reports that Deutsche Bank believes that this policy could increase GDP growth from 3.3% to 4.1%.

However, Chuck Marr, Director of Federal Tax Policy at the Center for Budget and Policy Priorities, points out that this stimulative measure will be part of the paycheck that people already receive, and so they may not realize that they have gained additional spending power:

"A family making $70,000 is going to get $1,400 bucks. If they got a check for $1,400, they would remember it."

Mark Robyn, a staff economist for the Tax Foundation, expressed a similar point:

"I think a lot of people will notice a difference, but they may not understand why their paycheck increased by $50."

It would seem that the White House's messaging department, which has not been having phenomenal success recently, certainly has their work cut out for them.

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