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Barack Obama is Increasing Your Paycheck

This article was written by in Economy. 10 comments.

The company has spent the past few months managing expectations. With the economy tanking and our company’s performance following the trend of all other companies in the industry, there won’t be much in the way of annual raises and bonuses this year. (We receive these incentives a few months after the end of the year in which they are earned.)

Barack Obama is prepared to step in with an economic stimulus that might allow workers to take more money home in paychecks. One proposal includes a tax credit advance to taxpayers. Through changing withholding amounts, employees would see this tax break as an additional $150 or more in each bi-weekly paycheck during the first quarter of 2009. For individuals with salaries below $75,000 or couples earning less than $150,000, a payroll tax credit would be offered, $500 for individuals or $1,000 for couples.

Rather than spreading the credit out throughout the year, the proposal calls for accelerating the credit to be fully provided within the first three months of the year.

Giving more money to taxpayers hasn’t really worked as an “economic stimulus” so far. This seems to be a unique way to approach the problem of stimulating the economy, but I’m not sure it will work on its own. Nevertheless, I can understand how this would be a welcome plan in a year in which companies can’t or won’t offer pay increases. The mantra heard most often now is that one should just be lucky to have a job at all.

Obama’s paycheck bonus, Jeanne Sahadi, CNN Money, December 30, 2008

Updated January 2, 2009 and originally published December 31, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar poor boomer

Pink Floyd was right.

“But if you ask for a rise/it’s no surprise/that hey’re giving none away”

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avatar kitty

The big problem is where this money come from. “taxing the rich” sounds very popular, unless one things about who signs one’s paycheck. Taxing large corporations and businesses earning over 250K – exactly the businesses that employ people – increases businesses operating expenses and leaving less money for our salaries. When earnings of so-called “rich” companies go down, it’s not the salary of a CEO earning millions that goes down – it’s the number of jobs.

Yes, I am sure payroll credit of $500 or $1000 is a great help when one loses a job netting a whole lot more money.

This is a typical redistribution and it couldn’t come in a worst time for the economy.

BTW – nope, I am not earning more than 250K (or 200K). But my employer is one of these large rich corporations. And I am scared as hell of what will happen with my job under Obama.

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avatar Juggler314

Forget taxing the rich…I wish all the tax cuts would affect the middle class everyone always refers to, those making under 250K, every time there’s a tax proposal it starts phasing out at 75K…sucks for those in that middle class, but not middle class demographic.

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avatar Lamar

also realize that if you continue to have health care coverage in 2009, that constitutes a raise, as health insurance costs continue to rise. it’s also true that if you can hold on to your job, you’ll actually make out great in a deflationary environment. the drop in gas prices has equaled an economic stimulus. and maybe some of us can soon afford a european vacation again.

the best corporations and small businesses will be able to cope with the expiration of tax cuts, and will retain their best employees. the rest will be part of the necessary creative destruction process.

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avatar the weakonomist

Why not just do a tax break? Lower % = more money in my pocket.

The last stimulus was a joke. Please stay out of it Obama. I don’t want the history books to remember you as the cause for hyperinflation.

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avatar Luke Landes

weakonomist: This proposal is a form of a tax break… theoretically, it would be a tax credit paid back to workers as an advance through less payroll tax withdrawn from paychecks, leaving more money in the hands of consumers on a weekly or biweekly basis (whatever the case may be). They have been talking about a reduction of marginal tax rates as well, so I’m wondering if this new proposal would be in conjunction or in addition to that. But this is just a proposal by Obama’s team, it’s still up to Congress to put it into law.

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avatar rox

I am also curious as to whether or not this move would be coupled with a reduction in marginal tax rate. I mean if they lower the withholding rate without lowering the marginal tax rate it just means that more people will end up owing when they file their 2009 tax returns. Currently if not enough is withheld one can be subject to interest and penalties – what would happen if a taxpayer hasn’t paid enough to cover their tax liability (or more accurately their safe harbor amount) because of a change in withholding rates? Would they still be subject to penalties and interest even though the fact enough wasn’t withheld was due to a change beyond their control?

A change in the withholding rate without a corresponding change in the marginal tax rate is like charging your taxes to a credit card – you’ll still owe the same principal but because you didn’t pay in full on time you’ll owe interest. All it does is buy the taxpayer some time and that time will come at a price.

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avatar Luke Landes

Rox: According to the proposal, the change in the withholding rate corresponds to a new tax credit (rather than a change in the marginal tax rates). All other things being equal, people won’t end up owing more.

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avatar thomas

3 words – Fair Tax Act. It’s time for everyone to start actually bringing home the money they earn (gross income) and stop letting government essentially push corporations to overseas employers.

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avatar gt

again, you have misquoted. for couples, it starts phasing out at 150k, not 100k.

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