Legislation would put more than $2000 in the pockets of average NJ families and help small businesses create jobs

Washington - U.S. Senator Robert Menendez (D-NJ) announced that he is co-sponsoring legislation to stop a huge tax hike from hitting middle-class families at the end of this year. The Senate is expected to vote tomorrow on the Middle Class Tax Cut Act, which would expand and extend the payroll tax cut, putting more than $2000 back into the pocket of the average New Jersey family next year. The bill also cuts taxes for small businesses to help them expand and create jobs.

"Hard working middle class families are struggling in this economy, and the last thing they need is a tax increase," said Senator Menendez. "If the tax cut expires, New Jersey families will have less money to spend and businesses will hire fewer workers. Numerous economists agree on how vital the tax cut is to this economy, and there is absolutely no reason why Congress shouldn't get this done."

The current two-percent payroll tax break is set to expire at the end of this month. If passed, the Middle Class Tax Cut Act would help create jobs and stimulate demand by giving approximately 160 million workers an increased payroll tax cut, with the average American family seeing nearly $1,500 in additional take-home pay and the average New Jersey working family seeing more than $2000.

Specifically:

The median yearly family income in the United States is $50,221. Under the current 2% payroll tax cut, set to expire at the end of this year, that family is saving approximately $1004 on their tax bill. If the tax cut is allowed to expired, their tax bill goes up by $1004. If the payroll tax cut is expanded to 3.1%, as called for by Menendez and Democrats, that family will put about $1557 into their pockets next year.

The median household income in New Jersey stands at $68,444. Under the current 2% payroll tax cut, that family is saving about $1369 on their tax bill. If the payroll tax cut expires, that New Jersey working family would see their taxes go up $1369 a year. If the bill passes and the tax cut is extended and expanded, they would put $2,122 into their pockets next year.

The bill is expected to be voted on by the Senate tomorrow.

Key Provisions Of The Middle Class Tax Cut Act Of 2011:

Provides Tax Cut to 160 Million Workers. The bill cuts in half (from 6.2% to 3.1%) the Social Security payroll tax paid by employees and the self-employed on their wages and salaries for 2012. Approximately 160 million workers will benefit from this tax cut, with the average family seeing nearly $1,500 in additional take-home pay. A family earning New Jersey's median income will save $2,122.

Cuts the Payroll Tax in Half for 98% of U.S. Businesses. The Senate bill cuts in half (from 6.2% to 3.1%) the Social Security payroll tax paid by employers on the first $5 million of taxable payroll for 2012. This will benefit all businesses, but 98% of businesses will see their portion of the Social Security payroll tax cut in half.

Gives an Added Incentive for Businesses to Hire New Workers. The bill completely eliminates (from 6.2% to 0%) the Social Security payroll tax paid by employers on the first $12.5 million of an employer's increased taxable payroll for the 4th quarter of 2011 and $50 million in increased payroll for 2012.

Avoids Tax Hike on the Middle Class by Asking Millionaires to Pay Their Fair Share: In order to prevent a tax hike on 160 million American workers, the bill imposes a 3.25% surtax on modified adjusted gross income in excess of $1 million for both single filers and married couples filing jointly. The surtax is effective for taxable years beginning after December 31, 2012.

Protects Social Security. The legislation would not affect the Social Security Trust Fund. It requires that the Fund be made whole through transfers from the General Fund.

Breakdown of how the Middle Class Tax Cut Act of 2011 payroll tax cut will benefit New Jerseyans (US Census Data)

Name

State Postal Code

Median Household Income

Savings From Payroll Tax Cut For Median Family (Expanded Cut)

Tax Increase For Median Family If Tax Cut Expires

United States

US

$50,221

$1,557

$1,004

New Jersey

NJ

$68,444

$2,122

$1,369

Atlantic County

NJ

$51,585

$1,599

$1,032

Bergen County

NJ

$80,604

$2,499

$1,612

Burlington County

NJ

$74,481

$2,309

$1,490

Camden County

NJ

$60,445

$1,874

$1,209

Cape May County

NJ

$49,797

$1,544

$996

Cumberland County

NJ

$47,921

$1,486

$958

Essex County

NJ

$53,712

$1,665

$1,074

Gloucester County

NJ

$69,928

$2,168

$1,399

Hudson County

NJ

$55,767

$1,729

$1,115

Hunterdon County

NJ

$100,485

$3,115

$2,010

Mercer County

NJ

$70,570

$2,188

$1,411

Middlesex County

NJ

$74,959

$2,324

$1,499

Monmouth County

NJ

$80,231

$2,487

$1,605

Morris County

NJ

$96,300

$2,985

$1,926

Ocean County

NJ

$59,456

$1,843

$1,189

Passaic County

NJ

$51,933

$1,610

$1,039

Salem County

NJ

$52,958

$1,642

$1,059

Somerset County

NJ

$90,125

$2,794

$1,803

Sussex County

NJ

$80,155

$2,485

$1,603

Union County

NJ

$64,588

$2,002

$1,292

Warren County

NJ

$70,092

$2,173

$1,402

Supported By Economists From Across The Political Spectrum:

Zandi: "We'll Likely Go Into Recession" If the Payroll Tax Cut Expires. In October,Mark Zandi of Moody's Analytics said of the 2010 payroll tax cut that is set to expire in December, "We`d be in recession right now without it. So I think if they don`t do that, at the very minimum, we`ll likely go into recession." Zandi wrote, "It is critical (and assumed in our baseline outlook) that lawmakers agree at least to extend and increase the payroll tax holiday for workers through 2012 as proposed by President Obama. This would reduce next year's fiscal drag to less than 1 percentage point-still a heavy lift for the economy, but doable." [MSNBC, 10/7/11; AP, 9/9/11; Moody's Analytics, 10/10/11]

Ameriprise Financial Economist: Payroll Tax Cut Could Add More Than 1 Million Jobs. "This additional spending capacity in the hands of consumers should continue to foster improvements in aggregate domestic demand. And ultimately, it is demand and demand alone that will lead to more business hiring," said Russell Price, senior economist for Ameriprise Financial Services. "Price estimates the increased payroll tax holiday for workers by itself is likely to add between 750,000 to 1 million jobs, and that the new break on payroll taxes for employers could add an additional 100,000 to 200,000 jobs. He added that gross domestic product, the broadest measure of the nation's economic activity, could get a 1.5 percentage point boost as well." [CNNMoney, 9/9/11]

JPMorgan: Allowing Unemployment Benefits and Payroll Tax Cut to Expire Could Slow Growth By Up to 2%. "What's more important for the economy in 2012 though is the fate of a number of stimulus measures, including a 2 percent cut in employee payroll taxes and extended unemployment benefits, that are due to expire at the end of the year, JPMorgan economist Feroli said. If Congress doesn't continue them, 'the drag from tightening fiscal policy could subtract 1.5 to 2 percentage points from GDP growth next year,' the former Fed economist added in a Nov. 10 note to clients." [Bloomberg News, 11/19/11]

  • JPMorgan: Current Payroll Tax Cut Boosted Consumer Spending. Discussing the payroll tax cut in a September note, JPMorgan wrote, "Although real consumer spending was subdued in the first quarter, when the tax cut kicked in, nominal consumer spending grew at a 6.1% annual rate, the fastest pace so far in the current expansion." [JPMorgan, Economic Research Note, 9/9/11]

Barclays Capital: Allowing Unemployment Benefits And Payroll Tax Cut To Expire "Would Shave About 1.5pp Off Of Consumption Growth." Barclays Capital wrote, "Given the political climate, finding $160bn of deficit savings needed to extend the payroll tax cut and the extended unemployment benefits at their current levels could be a high bar. The end of these stimulus measures would pose a noticeable headwind to disposable personal income growth early next year. We estimate if both stimulus measures expire, then the drag would shave about 1.5pp off of consumption growth (1pp off headline) on a q/q (saar) basis in Q1 of 2012." [Barclays Capital, 11/22/11]

  • Barclays Capital: Letting Payroll Tax Cut Expire Would Reduce GDP By 1.5 Percent. In an interview with Bloomberg Television, Barclays analyst Michael Pond warned, "One of the things that we're watching is thepayroll taxextension and the signals that we're getting from Washington as to whether we get that extension. Because if we don't, our growth forecast frankly will probably be dropped down from about 2.5 percent in Q1 down to around 1 percent. It's that big."[Bloomberg News, 11/29/11]

University of Chicago Economist: "Employment Could Be Roughly Three Million Greater During The Period Of The Tax Cut Than It Would Otherwise." Casey B. Mulligan, an economics professor at the University of Chicago, wrote, "the 3.1-percentage-point part of the president's proposal could raise employment by at least a million, albeit the duration of job creation is related to how long the tax cut lasts. I expect that every percentage-point reduction in employers' costs raises employment by about a percentage point and real gross domestic product by about 0.7 percentage point. That means employment could be roughly three million greater during the period of the tax cut than it would otherwise... The tax cut is proposed to last a year, and some of the estimated three million incremental job-years - a job that lasts a year, or 12 jobs that last a month - could be spread over time. So we might see only two million in the first year of the cut, with another one million after the cut expires. But still that's a lot of jobs." [New York Times, 9/14/11]

EPI: Failure to Extend Payroll Tax Cut Would Cost Nearly 1 Million Jobs. According to the Economic Policy Institute, failure to extend the payroll tax holiday would cost 972,000 American jobs in 2012. [EPI, 8/4/11]

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