What Did We Get For The $111 Billion FICA Tax Holiday?

On February 28, 2010, the Department of the Treasury, Bureau of Economic Accounts, released its monthly report on personal income and expenditures. The following is extracted from that report. It appears that, based on the figures from this report, workers aren’t spending in ways that help the economy the “lavish” amounts they are receiving from the FICA tax holiday. Not in January, anyway.

Just to remind everyone, the amount an individual worker gets isn’t that much, spread out over a year of paydays. If the worker’s annual income is $40,000, which is just below the average amount, that’s $800 over the course of the year divided among into 52 weekly paychecks (or $15.38 per check), 26 bi-weekly paychecks(or $30.77 per check}, or 12 monthly paychecks (or $66.67 per check) paychecks. If the worker earns $80,000 annually, his extra pocket money is $1,600. For those workers who make the maximum covered amount, $106,800, or above, they will see an extra $2,136. Since Social Security is taxed individually, married couples could get up to a $4,272 take home pay boost for the year. But most people make a lot less than this.

Personal Income

Personal income increased $133.2 billion, or 1.0 percent, in January, 2011.  In December, 2010, personal income increased $56.6 billion, or 0.4%.

This is a sharp increase in the rate of change of personal income for the last several months.  .

Personal Income Change (Percent Change From Prior Month)

September October November December January
0.0% 0.5% 0.3% 0.4% 1.0%

Disposable Personal Income

Disposable personal income (DPI) increased $78.3 billion, or 0.7 percent, in January, 2011.  In December, 2010, DPI increased $48.5 billion, or 0.4%.

This was a somewhat less sharp increase in the rate of change from the prior months.

Disposable Personal Income Change (Percent Change From Prior Month)

September October November December January
-0.1% 0.4% 0.3% 0.4% 0.7%

The January change in disposable personal income (DPI) was affected by two large special factors.

a.  Reduced employee contributions under FICA for Social Security from 6.2% of wages up to the maximum amount, $106,800.00 to 4.2%, due to the grandiosely and disingenuously named Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.  For anyone who has forgotten, this was the big Presidential and Democrat Congressional payoff to the Republican Party for holding the entire Federal government hostage in November and December.

b.  An increase in personal taxes and withholding, caused by the expiration of the Making Work Pay provisions of the American Recovery and Reinvestment Act of 2009 (“the stimulus.”).  If you noticed an increase in your Federal Tax withholding on your paystub for the first payday in January, this was its cause.  This increase boosted federal withheld income taxes by $38.6 billion in January, 2011.

Excluding these two special factors, DPI increased $11.4 billion, or 0.1 percent, in January, which is anemic, when one considers the sharp jump in inflation that month, instead of $78.3 billion, or 0.7%.

Personal Consumption Expenditures

Personal consumption expenditures (PCE) increased $23.7 billion, or 0.2 percent, in January, 2011.  In December, 2010, PCE increased $56.5 billion, or 0.5%.

January, 2010, had the lowest rate of increase in PCE for at least the last five months.

PCE Change (Percent Change From Prior Month)

September October November December January
0.3% 0.7% 0.3% 0.5% 0.2%

Real PCE (PCE adjusted to remove price changes) actually decreased 0.1 percent in January, in contrast to an increase in real PCE of 0.3 percent in December.

So, if we take out inflation, the amount spent on personal consumption actually went down in January.  So much for the economic stimulative effect of cutting the FICA tax.  Where did that $10 billion or so go in January?  Economists believe some of it may have been spent on necessities, but that most went toward paying down existing bills, which does not stimulate the economy at all.

The entire Sellout To The Repuiblicans Act of 2010 (I refuse to use iis real name) added nearly$700 billion to the deficit.

* $375 billion of this was extension of the Bush tax cuts.

* Continuing the Bush estate tax provisions added $68 billion to the total.

* Other, minor tax provisions dealing with extending depreciation rules favorable to business added about $21 billion.

* Another $111 billion was the cost to Social Security, which has to be replaced this year from some other source or added to the deficit.

* Extending Unemployment Benefits added $56 billion to the total.

* Continuing three tax credits which primarily help lower income and working class families added another $40 billion.

I have no objection to the last two provisions.  They are truly stimulative to the economy and they help the people who most need it.  The rest of the bill is unacceptable to me.  I want to remind everyone that the day after this thing was signed into law, Obama held a press conference at which he called liberal Democrats “sanctimonious purists.”  I call it being principled, which is more that I can say for Obama and the Congressional Democrats.

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