September 17, 2014

Elyria
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Workers hit hard by higher payroll taxes

ELYRIA — Paychecks are a little smaller with the expiration of the payroll tax cut this month.

Congress’ failure to extend the two-year cut means Social Security withholdings went from 4.2 percent back to 6.2 percent. A worker earning $50,000 annually will lose about $1,000 annually due to the expiration.

The cut was designed by the Obama administration to stimulate the economy. Rather than the lump-sum checks sent to workers by the Bush administration that some might tend to save or use to pay a bill, economists in the Obama administration thought it would be more stimulative to extend the tax cuts in smaller increments. The hope was that the extra money would be spent rather than saved.

Several shoppers at Midway Mall on Sunday were ambivalent about the expiration.

“I’d like to have it back, but it’s not to the point where I’m going to get all in an uproar about it,” said Daniel Soto, a 21-year-old machine operator from Lorain. “It’s not like it’s going for an expense where I have no idea where it’s going. I know it’s going for Social Security, so it’s not just lost.”

Jason Bollon, a 39-year-old hazardous waste operator from Elyria, also liked the idea that the expiration means the money is going into the Social Security Trust Fund. The fund is solvent until at least 2033, according to the Social Security Administration. The approximately $215 billion less in withholdings over the last two years was offset by general fund money, but some critics of the cut worried that might not always be the case.

Bollon said the expiration might make him look for bargains, but he didn’t think it would affect the spending and saving habits of most people.

“People with jobs are just going to go out and get what they want,” Bollon said.

While Bollon and Soto said the cut was too small to have much effect on their budgets, Dave Irvan, a 30-year-old press operator from Wadsworth, said it was helpful. Irvan said he and his fiancee, Lynn Carper, were living paycheck to paycheck for over a year until she recently found work. Irvan said less money in his paycheck is an incentive to spend less and save more.

“You never know,” he said. “It (the economy) might get worse.”

Irvan’s economic outlook is common among workers, said Professor Randy Olsen of The Ohio State University’s Economics Department. Olsen, who studies household finances, said the cut didn’t stimulate the economy as much as the Obama administration predicted, and he doesn’t think the expiration will have much effect on consumer spending.

“When people decide what they are going to buy, they look at what their long-term earning prospects are,” he said. “The problem that the economy has now is that people do not have confidence now in their long-term earning prospects.”

Kerry McLemore, a tax preparer and manager of H&R Block’s North Olmsted store, said roughly half of his customers were aware of the cut and the expiration. He said customers were warned last year that expiration was likely.

“There was disappointment that they would be losing something that now they have adjusted to and gotten used to,” he said. “But we haven’t seen any questions about that because our clients were prepared for it.”

Clients were given the option of having less witholdings removed from their checks to offset the expiration, but McLemore said most prefer getting a bigger federal income tax refund.

“Sometimes it’s used as a forced savings account so that they can take care of some planned expenses or fund a vacation or something like that,” he said. “Whereas, if they receive it during the year, it might be nice, but they’ll spend it on a day-to-day basis and may not realize the benefits of it.”

Contact Evan Goodenow at 329-7129 or egoodenow@chroniclet.com.