Temporary payroll tax cut extension passes, but long-term outlook remains uncertain
After weeks of deadlock, Congress finally agreed to a two-month payroll tax cut extension just eight days before it was set to expire at the end of the year.
The plan will extend the 2 percent payroll tax cut as well as expanded unemployment benefits. It will also head off a reduction in Medicare payments to doctors through February, buying lawmakers time to negotiate a yearlong agreement.
If members of Congress are unable to broker a more long-term deal, the payroll tax paid by 160 million workers in the United States will revert back to 6.2 percent from its current 4.2 percent level after the two-month extension expires in February. This would leave consumers with less money in their pockets, which is expected to have a negative impact on the country's already unsteady economic recovery. Federal unemployment benefits would also expire, leaving workers to rely on state benefits that typically time out at 26 weeks.
In response to the two-month extension, JPMorgan chief economist Michael Feroli upped his GDP growth estimate for the first half of 2012 from 1 percent to 2.5 percent.
The plan will extend the 2 percent payroll tax cut as well as expanded unemployment benefits. It will also head off a reduction in Medicare payments to doctors through February, buying lawmakers time to negotiate a yearlong agreement.
If members of Congress are unable to broker a more long-term deal, the payroll tax paid by 160 million workers in the United States will revert back to 6.2 percent from its current 4.2 percent level after the two-month extension expires in February. This would leave consumers with less money in their pockets, which is expected to have a negative impact on the country's already unsteady economic recovery. Federal unemployment benefits would also expire, leaving workers to rely on state benefits that typically time out at 26 weeks.
In response to the two-month extension, JPMorgan chief economist Michael Feroli upped his GDP growth estimate for the first half of 2012 from 1 percent to 2.5 percent.
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