Working Poor Take Home Less Pay With Tax Deal

Despite a tax cut compromise that is supposed to keep everyone whole financially, if not better off, 51 million households will face a higher tax bill or a lower refund compared with this year.

The main culprit: The proposed payroll tax break would not be as generous for many low- and middle-income households as the tax cut it is replacing.

The bill, which has passed the Senate and is set for a House vote on Thursday, would for one year reduce workers' Social Security taxes. Workers pay 6.2% on their first $106,800 of wages. The tax cut deal would reduce that to 4.2%.

That payroll tax "holiday" would replace the Making Work Pay credit, which expires Dec. 31 and was part of the 2009 Recovery Act.

As a result, 51 million households -- about a third of the total -- would be out an average of $210 compared with this year, according to the nonpartisan Tax Policy Center.

"Nothing else in the compromise tax agreement compensates [them] for those losses," Tax Policy Center senior fellow Roberton Williams wrote in the blog Tax Vox.

About 45 million of the households represent private and public sector workers.

Here's why they won't get as much tax relief in 2011: Making Work Pay was worth $400 for individuals making $75,000 or less or $800 per couple making $150,000 or less.

To get that much under the payroll tax break, one would need to earn at least $20,000 ($40,000 for couples). That's because the payroll tax break would amount to 2% of a worker's pay.

The other 6 million households affected represent state and local government employees who received the Making Work Pay credit but won't qualify for the payroll tax holiday. Why? Because they're not covered by Social Security and therefore don't pay into the system.

Source: CNN

Kevin Eason is a freelance editorial cartoonist and Illustrator from New Jersey. His brand of satire covers news events in politics, entertainment, sports and much more. Follow him on Facebook.