Last week most Americans were surprised to learn that their paychecks were a little lighter than usual. That’s because this administration has allowed the payroll tax to go up 2% for the new year. As the owner of a small company, Glenn explains exactly how impactful this and other measures this administration has enacted have been on the engine that drives jobs in America: small business.
In an e-mail to Mercury and TheBlaze staffers, Agnes, Glenn’s head of Human Resources, wrote:
The not so great news is that the payroll tax that was rolled back in 2011 from 6.2% to 4.2% has been restored to 6.2% effective January 1, 2013. Thus you may notice a dip in your take home pay.
Finally, fulltime, benefit eligible employees will note a Group Term Life deduction. While the company pays 100% of your Life Insurance Benefit premiums, the government requires that you, the employee, pay an imputed tax for life insurance coverage in excess of $50,000.00 per year. The amount of the tax is governed by the amount of the coverage & the employee’s age. The older a person is, the higher the tax is. What can I say? That’s Life!
“So you’re taxed on buying a life insurance policy for yourself? That the company is actually paying for. And then we have to be taxed on that. That’s just astounding,” Pat said after Glenn read the e-mail.
“I’m buying your life insurance. So your family, in case something happens to you, your family is covered. That should be something the federal government says “Thank you. Thank you, Mercury.” Because if you die, now your kids are not going to be living off of welfare,” Glenn said.
“Because I took care of the insurance for you, but I can guarantee that I’m being penalized for it and you’re being penalized for it. And so now what’s going to happen? Most companies are going to say, ‘No life insurance. No, I can’t afford the life insurance. Something’s got to give. We’re going to give the life insurance. So if you guys want life insurance, you’re going to have to pay for it.’ Is that incredible?”
“Thank you, universal healthcare. So now these people who all supported that guy for president are now being they’re losing pay because they’re getting cut hours and they’re losing their healthcare,” Stu added.
As of Jan. 1, the payroll tax that funds Social Security was raised two percentage points to its 2010 level of 6.2 percent. It is also by far the biggest component—$125 billion of the $190 billion—in tax increases approved by Congress to fend off a bigger wave of tax hikes from the “fiscal cliff.”
Economists expect it to pare as much as 1 percent or even more from first quarter growth on an annualized basis.
“In Q1, annualized it will shave about 1.4 percent off GDP,” estimated Mark Zandi, chief economist at Moody’s Economy.com. He said the payroll tax increase is by far the biggest hit, and he expects that the other new taxes amount to a dent to growth in the first quarter of about 0.3 percent.
The payroll tax increase is widely expected to shave about 0.6 percentage point off of GDP this year, but the hit will be hardest in the first quarter as consumers initially feel the pinch.