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A Temporary Fix -- What the Payroll Tax Cut REALLY Means

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Uploaded on Jan 13, 2012

When Congress passed the "Temporary Payroll Tax Cut Continuation Act of 2011" two days before Christmas, it allowed 160 million Americans to keep a little extra money in their pockets for the start of the New Year. But it was only a temporary fix to a much bigger problem. It was designed to boost the economy, giving consumers more money to spend and helping create new jobs. The average American worker receives an extra $40 per paycheck from the payroll tax cut, resulting in a little more than $1,000 per year. The payroll tax cut went into effect last January as part of the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010" and was originally intended for 2011 only, dropping the FICA rate from 6.2% to 4.2%. However, its effectiveness has been debated, with proponents arguing it is essential for the economy and opponents wanting the government to stop spending and focus more on cutting the deficit.

The payroll tax cut was only extended through February 29 along with emergency federal unemployment benefits at a cost of $33 billion dollars, which will be paid for through additional fees tacked on to mortgages backed by Fannie Mae and Freddie Mac. Another issue is whether or not the payroll tax cut is actually helping those in the middle class because some will be paying more for their mortgages in order to fund this bill. The bill also prevented a 27% cut in payments to Medicare physicians in January and February.

The goal of Congress before the payroll tax cut expires is to pass a long-term solution to extend it at least through the rest of 2012, so watch this week's CBTV show to find out how you can make better use of the extra money while you're still receiving it!

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