Who's benefiting from a payroll tax cut?
A man deposits his tax return into a mailbox on the final day for filing taxes, April 16, 2001 in Atlanta, Ga.
Steve Chiotakis: President Obama is planning to turn up the heat on Congress this week. He wants members to renew a payroll tax cut that expires at the end of the year. There are different partisan ideas about how to go forward with those cuts.
But Fortune magazine's Allan Sloan says as it stands now, those tax cuts may not be helping the people who need it most -- or the economy for that matter. Good morning Allan.
Allan Sloan: Good morning, Steve.
Chiotakis: So how has the payroll tax cut worked in the past?
Sloan: Oh, it's worked by magic.
Sloan: Yeah. The government takes $112 billion or so of Treasury securities and puts them into the Social Security Trust Fund, for the money not going into the fund. And then for the cash not coming in for the government, the government went out and borrowed another $112 billion. Piece of cake.
Chiotakis: Piece of cake. So who's benefiting the most from these payroll tax cuts? I mean, are we talking about poorer people getting the benefits? The majority of them, or middle class? Wealthy people?
Sloan: Well actually, we're talking about people like me who are paid north of $100,000 a year, because I got from the current cut roughly $2,000. And the average employee got maybe $800, $700, $600, 2 percent of whatever his wages are.
Chiotakis: This is extra money in your pocket, right? That's not being taken out of your paycheck?
Sloan: That is correct. And I am glad to have it.
Chiotakis: What would happen if these tax cuts were allowed to expire at the end of the year? If they just went away?
Sloan: Well, there'd be a lot less money being spent by people who really need these cuts to keep going. It wouldn't make any difference to me, but it would make a difference, I suspect, to the economy. If you look at what's going on, there's a big fear that if you eliminate this tax holiday, you're going to cut spending -- substantially by consumers.
Chiotakis: Should we be thinking about tax cuts with all these painful budget cuts that we have up ahead?
Sloan: Well, if you want to stimulate the economy by putting money in -- which is what they're supposedly doing -- this is a pretty good way to do it because you put it in, it'll get spent, it's simple and it goes away in a year.
Chiotakis: Fortune Magazine's Allan Sloan in New York. Allan, thanks.
Sloan: My pleasure, Steve.