The payroll tax holiday ended at the beginning of the year, adding an additional two percent to Social Security taxes for every American who has a job.
While this will affect all BYU students who have a job, the reduction may not be as noticeable as the tax increases will be for the wealthy.
The reinstatement of the payroll tax itself was part of the larger Fiscal Cliff deal, which has several parts. Hal Heaton, a finance professor, described the deal as complex as he attempted to communicate the deal in simpler terms.
“The fiscal cliff referred to the expiration of a number of deals that Congress had agreed to earlier,” Heaton said.
Among these deals, explained Heaton, were the expiration of the Bush tax cuts, which were scheduled to end in 2010 but were extended until Jan. 1, 2013. The end of the Bush tax cuts raised taxes for married couples who make over $450,000 and singles who make over $400,000.
The second deal was the end of the payroll tax holiday that had reduced employees’ Social Security tax from 6.2% to 4.2% for the past two years. This deal was an attempt to boost the economy and was initially meant to only last a year.
The third deal involved the cutting of spending within different government programs with a process called sequestration, which would have cut billions of dollars from the budgets of the military and other government programs unless the Super Committee, a group of six Democrats and six Republicans, reached an agreement cocerning where the money would be cut from by Jan. 1, 2013. An agreement was not made, but sequestration was delayed until March 1, 2013.
“We had three parts to the fiscal cliff,” said Heaton. “An increase in taxes, a massive decrease in spending and an increase in payroll taxes.”
While many BYU students will notice some money going out of their paychecks to that tax, most students are below the poverty line as far as income goes so that amount will be minimal.
Josh Coen, a sophomore studying exercise science who coaches tennis at Gold’s Gym, is not too worried about it.
“I think it will affect me, but I don’t know if I will notice it that much because I don’t think it will be a drastic change.”
Jenny Johnson, a senior studying elementary education, was initially not happy about the tax because she and her husband have just had their first child and an additional $30 dollars will be taken from their paycheck each month.
“I’m not happy about getting taxed more, and I don’t think anyone is, but sometimes that’s what we have to do,” Johnson said.
As far as who is going to be hit the hardest by the deals, Jim Brau, also a finance professor, said it is mostly a matter of opinion.
“It depends on what political thought you come from,” Brau said.
As far as who will be paying the most money in taxes, Brau indicated that the rich will be paying a lot more than anyone else.
Despite the struggle between political parties to make this deal happen and the reinstatement of taxes, Heaton indicated that the deal is only a short fix because government spending is exceeding the amount it is receiving in taxes. Heaton stated that the fiscal cliff will always be on the horizon.
“Every 2-3 months there’s going to be another crisis,” Heaton said. “So just plan on it for the next several years.”