WASHINGTON -- Regardless of who wins the presidential election in November or what compromises Congress strikes in the lame-duck session to keep the economy from automatic tax increases and spending cuts, 160 million American wage earners will probably see their tax bills jump after Jan. 1.
That is when the temporary payroll tax holiday comes to an end. Its expiration means less income in families' pocketbooks -- the tax increase would be about $95 billion in 2013 alone -- at a time when the economy is little better than it was when the White House reached a deal on the tax break last year.
Independent analysts believe that the expiration of the tax cut could shave as much as a percentage point off economic output in 2013, and cost the economy as many as 1 million jobs. That is because the typical American family had $1,000 in additional income from the lower tax.
But there is still little desire to make an extension part of the negotiations to avert the huge tax increases and across-the-board spending cuts, known as the fiscal cliff, that will start in January without a deal. For example, without any action, the Bush-era tax cuts will expire and the military and other domestic spending programs will be reduced.
"This has to be a temporary tax cut," said Timothy F. Geithner, the Treasury secretary, testifying before the Senate Budget Committee this year and voicing the view of many in the White House and on Capitol Hill. "I don't see any reason to consider supporting its extension."
There are two main reasons for the lack of support. First, Democrats and Republicans would rather focus on the broader political and economic issue of the fate of the Bush-era income tax cuts. These cuts are deeply entrenched in the tax code and central to the budget battle.
Second, independent economists say the economy could shoulder the payroll tax increase without undue harm.
Still, expiration of the payroll tax cut will increase the taxes of millions of middle-class families.