Last night, in his State of the Union address, President Obama asked Congress to pass an extension of the payroll tax cut without delay. The original tax cut, which reduced the employee share of Social Security taxes, expired at the end of 2011 and was extended for two months. Along with the payroll tax cut, Congress also passed a two month re-authorization of extended federal unemployment insurance, which provides unemployment benefits to the long-term unemployed.
Both of these provisions will expire at the end of February without Congressional action, and a report released yesterday from the Joint Economic Committee outlines the economic impact of these two policies, underscoring the importance of their extension to West Virginia and the nation.
According to the report
, failure to extend the payroll tax cut and federal unemployment insurance benefits for the rest of 2012 could reduce GDP growth by 1.7 percentage points in 2012, due to the negative impact on disposable personal income.
Extending the payroll tax cut increase the median take home pay in West Virginia by $724 for the remainder of the year, while keeping federal emergency unemployment insurance benefits would prevent 10,000 long-term unemployed West Virginians from losing their benefits on June 2.
Both the payroll tax cut and the extension of emergency federal unemployment benefits are effective economic stimuli, providing a large bang for the buck. Both bolster consumer demand, putting money in the pockets of those who are most likely to spend it. In addition, the payroll tax cut does not harm the financial security of social security, as the temporary reduction in payroll tax revenue has been and would continue to be made up by reimbursements from the Treasury’s General Fund.
While the economy in West Virginia and the nation overall has been making progress in recent months, the premature expiration of these policies could put the brakes on the recovery, and hurt the pockets of working families who are already struggling.