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Making Work Pay vs. the payroll tax cut, in two charts
This piece is from October 29.
Making Work Pay vs. the payroll tax cut, in two charts
Posted by Dylan Matthews
As Ezra noted this morning, the White House is floating a revival of the Making Work Pay tax credit — a key part of the stimulus package — as a replacement for the expiring payroll tax holiday. That’s ironic, since the payroll tax holiday was originally a replacement for the expiring Making Work Pay (or MWP) tax credit, which lapsed in late 2010.
The two tax cuts operate very similarly. The payroll tax cut reduces the employee’s share of the payroll tax from 6.2 percent of wages to 4.2 percent. So it was effectively a cut worth 2 percent of wages, up to a maximum benefit of $2,136 (2 percent of $106,800, the payroll tax cap in 2011). The Making Work Pay tax credit was worth 6.2 percent of payroll up to a maximum benefit of $400 for individuals, or $800 for couples.
If the Making Work Pay credit sounds smaller from that description, that’s because it is. It costs about half as much, for one thing. The MWP credit cost $116.2 billion over 10 years, and took effect for two, while the payroll tax holiday cost $111.653 billion over 10 years, and took effect for one. So the payroll tax holiday was effectively twice as expensive.
So if the White House wanted to replicate the effect of the payroll tax cut, they’d want to not just revive the Making Work Pay credit, they’d want to double it. Thankfully, the Tax Policy Center has compared a double MWP credit (with caps of $800 and $1,600, rather than $400 and $800 in the original) to the payroll tax holiday to see who fares better under one or the other. I also threw in their estimates for the initial MWP credit for comparison:
- more -
http://www.washingtonpost.com/blogs/wonkblog/wp/2012/10/29/making-work-pay-vs-the-payroll-tax-cut-in-two-charts/
Posted by Dylan Matthews
As Ezra noted this morning, the White House is floating a revival of the Making Work Pay tax credit — a key part of the stimulus package — as a replacement for the expiring payroll tax holiday. That’s ironic, since the payroll tax holiday was originally a replacement for the expiring Making Work Pay (or MWP) tax credit, which lapsed in late 2010.
The two tax cuts operate very similarly. The payroll tax cut reduces the employee’s share of the payroll tax from 6.2 percent of wages to 4.2 percent. So it was effectively a cut worth 2 percent of wages, up to a maximum benefit of $2,136 (2 percent of $106,800, the payroll tax cap in 2011). The Making Work Pay tax credit was worth 6.2 percent of payroll up to a maximum benefit of $400 for individuals, or $800 for couples.
If the Making Work Pay credit sounds smaller from that description, that’s because it is. It costs about half as much, for one thing. The MWP credit cost $116.2 billion over 10 years, and took effect for two, while the payroll tax holiday cost $111.653 billion over 10 years, and took effect for one. So the payroll tax holiday was effectively twice as expensive.
So if the White House wanted to replicate the effect of the payroll tax cut, they’d want to not just revive the Making Work Pay credit, they’d want to double it. Thankfully, the Tax Policy Center has compared a double MWP credit (with caps of $800 and $1,600, rather than $400 and $800 in the original) to the payroll tax holiday to see who fares better under one or the other. I also threw in their estimates for the initial MWP credit for comparison:
- more -
http://www.washingtonpost.com/blogs/wonkblog/wp/2012/10/29/making-work-pay-vs-the-payroll-tax-cut-in-two-charts/