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The super committee’s failure to cut $1.2 trillion from the federal deficit this week could mean some consumers will see their jobs cut and taxes raised in the new year. Among its failures, the debt panel couldn’t decide whether to extend the payroll tax cut, which gave employees an extra two percentage points to take home from their paycheck this year.
The benefits are capped at $2,100 per year for those making $106,800 or more, which may not seem like much. But for families that took the extra cash into account when building their annual budgets, it certainly adds up, Stuart Ritter, a T. Rowe Price financial planner, told SmartMoney‘s AnnaMaria Andriotis.
What’s worse, the hike in payroll taxes could mean an estimated 1.1 million people will lose their jobs, Andrew Fieldhouse, federal budget policy analyst with the Economic Policy Institute, a think tank, told SmartMoney.
Deutsche Bank’s chief economist Joe LaVorgna paints a somewhat rosier picture:
“The payroll tax holiday did not provide much if any lift to spending this year, contrary to what we had forecasted,” he said. “This could be due to the fact that it was temporary or possibly because the average worker saw a relatively small increase in his/her paycheck of roughly $16 per week.”
It’s possible Congress could agree to a payroll tax extension before the year’s out, LaVorgna added, but regardless of taxes, it’s likely companies will continue to revamp their capital infrastructure.
“Put another way, cash flush companies were bound to lift capital spending regardless of whether there was an incentive to do so,” he said.
To prepare for whatever Congress decides, Fieldstone recommends consumers put three to six months’ worth of emergency cash into a savings account. Some in Congress propose slashing unemployment benefits from 99 weeks to 46 weeks or even down to 24 weeks, he noted.
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