Business

‘Holiday’ to a tax museum

Tis the season to be jolly, but don’t tell that to the number crunchers at the University of Michigan. On Friday, it was reported that the university’s widely followed consumer confidence index tumbled to a reading of 72.9 in December, a surprise drop that left the measure at the lowest reading since July — when the economy began its summertime perk-up.

But while pundits posited that the crumbling confidence was due to the possible expiration of the Bush tax cuts on that tiny sliver of the population making more than $250,000 or a million bucks a year, the real threat cuts a far wider swath. The bottom line? Every American who brings home a paycheck is about to see that paycheck shrink, beginning next week.

That’s because despite all the trash talk about the Bush tax cuts, President Obama can lay claim to a substantial one of his own — the payroll-tax holiday that he inaugurated in 2010 as a quick fix for an ailing consumer economy.

The Obama tax cuts have lowered taxes on more than 150 million American workers, cutting the payroll tax contributions that fund Social Security by 2 percent, from 6.2 percent of wages back in 2009 to just 4.2 percent today. For the average household, that meant about a $1,000 boost in take-home pay. For workers making $100,000 a year, the Obama tax cut added up to $1,900 — or about twice what the average family spends on Christmas gifts.

This broad Obama tax cut is scheduled to expire when the ball drops in Times Square, and so far there has been little talk that it will be extended in any deal that walks the nation back from the fiscal cliff.

“It’s kind of the Rodney Dangerfield of taxes in that most people are not aware of it, but it could bring on a significant hit to growth if it ends,” warned Mark Zandi, Team Obama’s favorite outside economist, last week.

When the tax holiday ends — and it will eventually have to, no matter what short-term deal may be struck — the economy will suffer the hangover.

Yes, 2013 is shaping up to be the year when Americans begin to discover that the costs of borrowing from tomorrow to pay for today are painful indeed.