Workers across western Colorado, like their counterparts around the country, probably saw a little more money in their paychecks last week. That’s because a 2 percent reduction in the payroll tax — the amount of money we pay for Social Security and Medicare — took effect the first of the year as part of the agreement late last year to extend the Bush tax rates for two more years.
We have some advice for all those workers seeing additional cash in their paychecks as a result of the reduction: Spend it.
That’s not appropriate advice for everyone, of course. If your primary need is to pay off credit card debt or reimburse health care expenses or something of that nature, you shouldn’t rush out and buy an iPad or high-def TV.
But the payroll-tax cut is designed to spur the economy by encouraging people to spend more.
As Vice President Joe Biden wrote in an op-ed piece published in a number of news outlets, “All told, this tax cut will put $112 billion into the pockets of 155 million workers, who will then inject it back into the economy, spurring growth and creating jobs ... Economists, experts and commentators from across the political spectrum agree that the payroll tax holiday is one of the most effective ways to spark real, lasting economic growth.”
It’s arguable whether reducing the money flowing into Social Security and Medicare was the wisest thing to do at a time when both are facing long-term financial problems. It’s also arguable whether extending all of the Bush tax cuts was the best move for the country right now. But both measures were enacted through the agreement worked out between President Barack Obama and congressional Republicans. However, the temporary reduction in the payroll tax will only have an impact if most people use it to purchase products that spur the economy.