Archives for October 2011

As you may know, there is a temporary 2% payroll tax cut in 2011. Instead of the normal 6.2% Social Security tax on gross wages up $106,800 for employees, it is only 4.2%. This is supposed to be reflected automatically in your paycheck, so most people’s paychecks this year should have been a little bit bigger. I say most because at the same time, the Making Work Pay Tax Credit was expired for 2011. Here’s a chart from the Tax Policy Center showing the net savings from last year for your given income:

A single person earning $50,000 would be paying $600 less in taxes in 2011 vs. 2010. This is the net result of gaining the $1,000 payroll tax cut, and losing $400 from the Making Work Pay Tax Credit of 2009/2010.

The law was passed right around the start of the new year, so according to Consumer Reports so there could have been a mix of under-withholding and over-withholding for the first few pay cycles. Employers had until March 31st to get all the withholding sorted out. It’s pretty late in the year already, but still I just did a quick check to make sure that I am still getting that 2% savings. It just takes a minute – find your paycheck stub, and divide the Social Security line by your Gross Pay line. It should equal to 0.042, or 4.2%.

(Update: It could end up a bit less than 4.2% if you have items that are not subject to Social Security tax, like health insurance premiums or Flexible Spending Accounts. But it shouldn’t be more than 4.2%.)

You’ve been putting that extra money to good use, right?

There was plenty of discussion on simplifying the US budget to household-sized numbers, and I have nothing to add, because I have zero interest in being an economist. 🙂 Here’s one more attempt at sharing some digestible information. An interesting site called Department of Numbers has collated numbers from government sources like the Treasury and put them together nicely into a series of charts. Here are two I wanted to point out and also save as a historical snapshot of “what things in 2011 looked like”.

US Government Debt as Percentage of GDP

US Government Income and Expenses as Percentage of GDP

From the top chart, you can see that we are close to a 100% debt-to-GDP ratio. The last time it was this high was World War II. Even in recent “good times” – or at least better times than now – the percentage hasn’t really gone down much. That’s what I mean by “kicking the can down the road”. In the bottom chart, you can see the large gap between government revenue generated (taxes) and expenditures.

I’ll go back to saving 50%+ of my income now, hopefully investing it wisely, and not reading scary bedtime stories like Boomerang!

Someone sent this to me via e-mail, and I don’t know the original source. From the $38.5 trillion number, that seems to refer to the budget cut deal that averted a US government shutdown in April 2011. In any case, it does make the numbers much more easy to grasp.

Some stats about the US government:

• U.S. Tax revenue: $2,170,000,000,000
• Fed budget: $3,820,000,000,000
• New debt: $ 1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cuts: $ 38,500,000,000

Now, remove 8 zeroes and pretend it’s a household budget:

• Annual family income: $21,700
• Money the family spent: $38,200
• New debt on the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Total budget cuts: $385

I know that this is macroeconomics vs. microeconomics. But the orders of magnitude are correct, and it can’t look good to anybody. I’ve never really liked the macroeconomics theory that it’s okay for governments to carry huge amounts of debt as long as it’s “only” a certain percentage of GDP. The idea is that you’ll grow your way out of it. Europe has shown us that entire developed countries can default.

Now, I’m more of a microeconomics guy. I try to figure out the rules of the game and play it the best that I can. I avoid getting emotionally involved in things that I view are out of my control. But to me, it just seems like all the politicians ever do is kick the can down the road. You can’t do that forever.