A minimum wage increase is always nice for the worker, but the recent hikes lasted only a few hours on New Year’s Day for the nation’s poorest workers in ten states. On Tuesday, the House of Representatives approved the deal to avoid the “fiscal cliff.”
However, it did not accommodate an extension of the payroll tax holiday, dramatically expanding by 2 percent workers’ payroll tax supplements that help pay for Social Security.
Minimum-wage workers who are getting a wage increase this year will also be paying a higher payroll tax which will cancel out most, if not all, of the potential gains they anticipated in the deal.
According to the Wall Street Journal’s payroll tax calculator, a worker who makes $15,000 a year — roughly the salary of a full-time, minimum-wage worker in most states — will pay an additional $300 in payroll taxes this year under the deal struck by Congress and the White House.
HuffPost reports the end of the payroll tax holiday, which dropped the payroll tax from 6.2 to 4.2 percent, was among the least-discussed but perhaps most economically consequential elements of fiscal cliff negotiations.
Moody’s Analytics chief economist, Mark Zandi, estimated that the higher payroll tax for 2013 could reduce economic growth by more than half a percentage point.