Extending the payroll tax cut and emergency unemployment benefits just got harder…
The payroll tax cut and emergency unemployment benefits expire at year end, unless Congress acts to extend them. The most obvious means for extension has been inclusion in the super committee package and failure to reach agreement has reduced the likelihood of extension of these provisions, for two reasons:
(1) offsetting the cost of a payroll tax cut ($110 billion/year) and/or emergency unemployment benefits ($50 billion/year) extension is more difficult to do outside of the super-committee process, where "creative accounting" such as the use of war savings would have been more easily tolerated by both parties, and
(2) the political debate is likely to get more acrimonious following super committee failure, which could make it more difficult to agree on other items
Goldman has previously estimated that the loss of unemployment benefits and the payroll tax could drag the economy down by 0.6 percent, according to BI. Others say the drag could be even stronger.
It's hard to fathom that Congress is actually going to adopt a policy that will give every American paying Social Security taxes a pay cut.
But that looks increasingly like it's going to happen.
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