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We Can’t Allow the Payroll Tax Cut and Unemployment Benefits to Expire
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We Can’t Allow the Payroll Tax Cut and Unemployment Benefits to Expire

Allowing Them to End Will Threaten the Economic Recovery

Seth Hanlon and Heather Boushey explain why allowing the payroll tax cut and unemployment benefits to end will hurt the economic recovery.

President Barack Obama delivers a statement at the White House, Saturday, December 17, 2011, following the Senate vote to approve legislation continuing the Social Security payroll tax cut and unemployment benefits for two months. (AP/Manuel Balce Ceneta)
President Barack Obama delivers a statement at the White House, Saturday, December 17, 2011, following the Senate vote to approve legislation continuing the Social Security payroll tax cut and unemployment benefits for two months. (AP/Manuel Balce Ceneta)

The Senate overwhelmingly approved a bipartisan compromise Saturday to prevent the payroll tax cut and unemployment benefits from expiring at the end of the year. The House will hold a critical vote on the measure later today.

If the House doesn’t approve the measure, the current payroll tax holiday will expire at the end of the year. As a result, taxes will go up for 160 million workers, starting with their first paychecks of 2012. The typical middle-class household tax increase in 2012 will be about $1,000. The combined effect of this across-the-board middle-class tax increase on consumer demand would seriously threaten the fragile economic recovery.

Congressional inaction through 2012 would also cause unemployment insurance benefits to run out for more than 5 million workers. The unemployment rate is still 8.6 percent, and for every one job opening, there are four people actively looking for employment. Cutting off unemployment benefits would not only create vast uncertainty and hardship for affected families, but it would also cause the economy to lose about $50 billion in demand, which would further hinder the recovery and cost more jobs.

As House members consider their vote on the bipartisan Senate compromise, they should consider the impact on their states. The maps below show how much taxes will rise on the typical middle-income family in each state, and how many families stand to lose unemployment benefits in each state.

Payroll tax cuts

UI

Seth Hanlon is Director of Fiscal Reform and Heather Boushey is Senior Economist at the Center for American Progress.

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Authors

Seth Hanlon

Acting Vice President, Economy

Heather Boushey

Senior Fellow

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