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White House White Board: Payroll Tax Cuts - YouTube
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(marker scratching on board)
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Brian Deese:
Hi! I am not Austan Goolsbee
but I am Brian Deese.
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I'm the Deputy Director of
the National Economic Council.
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And I'm here today to
talk to you a little
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bit about payroll taxes.
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Now, what many of you may not
know is that this year if you're
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working you're paying less in
payroll taxes than you have in
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previous years.
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And what you also may not know
is that in just a couple of
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weeks, your payroll taxes
may be headed back up.
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So let me explain.
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The payroll tax is the tax that
workers pay on every dollar that
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they earn up to about a
hundred thousand dollars.
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You can see it on your paycheck
there is a line that actually
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shows the payroll taxes that
are taken out each pay period.
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Typically a worker pays 6.2%
of their paycheck, again,
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up to about a hundred thousand
dollars in payroll taxes.
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So, in 2010, a family making
$50,000 paid 6.2% or about
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$3,100 in payroll taxes.
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At the end of last year, the
President worked with Congress
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to cut those taxes.
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And so he reduced
this 6.2% to 4.2%.
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So in 2011 the typical family
paid 4.2% which again if you're
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making about $50,000
that's $2,100,
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which means that this year that
family is getting a tax cut of
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about a thousand dollars.
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If nothing happens, that tax cut
is going to go away at the end
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of this year because that rate
that families are paying this
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year is scheduled
to go back to 6.2%.
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And President Obama is
focused on making sure
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that doesn't happen.
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In fact, he's proposed to
even lower that rate further.
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So this 4.2% would get reduced
to 3.1% in 2012 which means that
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the tax benefit that a typical
family would get would increase
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from a thousand
dollars to $1,500.
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But either way the one thing
that we can't afford is to do
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nothing, let the end of
the year come and go,
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and have this thousand
dollar benefit disappear
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for typical families.
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Which means in 2012 the
family will get nothing.
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So that's how the payroll tax
cut works for a typical family,
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but how does it work
for the overall economy?
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Well, when you give a
typical family tax relief,
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it's not likely to just
sit in their bank account.
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In fact, most of that tax relief
gets spent on anything from
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groceries to a family going out
and having their car repaired.
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When families spend
money on these items,
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what it does is it
provides increased demand,
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increased business
for local companies.
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Those companies in turn have
more money to invest in things
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like workers, hiring
additional employees,
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or in making additional capital
expenditures in new machines,
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in new ability to grow
their own business.
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And when they hire
additional workers,
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those workers then are able to
have more money to put back into
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things like going out
to eat at restaurants,
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getting their own car repaired.
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And so that's the cycle that
helps boost our economy overall.
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And if you forgive me to
get technical for a moment,
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the way that economists judge
the effectiveness of a tax cut
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is by looking at the multiplier
effect which is a complicated
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way of talking about exactly
this dynamic in terms of
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supporting the economy.
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And when economists look at the
effectiveness of different tax
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cuts -- and this is one example
from a firm called Moody's
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Analytics -- they show that
these types of tax cuts that
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are aimed at cutting taxes for
typical employees are among the
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most effective.
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They have the highest bang
for the buck in terms of
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supporting the economy.
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They're much more effective than
tax cuts that are principally
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aimed at wealthier Americans
because wealthier Americans are
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less likely to go out and spend
those dollars on things like gas
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and groceries and
repairing their car.
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So we've talked about the way
that the tax cut affects typical
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families and the economy.
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Now the question is
where do we go from here?
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Well, the President believes
that we need to pass this tax
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cut in a way that's
fair and has balance.
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One of his ideas is to pay for
it by asking the wealthiest
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Americans, those making over
a million dollars a year,
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to pay a little
bit more in taxes.
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Now, that would mean that
about 300,000 of the wealthiest
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Americans in this country would pay a little more to provide
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160 million Americans
this kind of tax relief.
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It's balanced and it has a lot
of support across the political
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spectrum outside of Washington.
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Unfortunately, some members of
Congress are actually opposing
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this tax cut all together and
some of those are the same
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members of Congress who have
been fighting for extending tax
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cuts for the various wealthiest
Americans for many years.
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And others, while they put
forward legislation to extend
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these tax benefits, they've
proposed ways of paying for it
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that could actually set back
middle class families in the
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same economic objectives we're
trying to achieve by forcing
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cuts to things like education
and medical research and also
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using this as an opportunity to
fight a bunch of old political
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battles and ideological
battles about everything
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from environmental issues
to relitigating health care.
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It really doesn't have
to be that complicated.
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We have a tax cut that
is about to expire for
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160 million Americans.
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And we know that if we take a
step to provide that tax relief
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in a balanced way it would
be good for our families,
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it would be good
for our businesses,
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and it would be good
for the economy overall.
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Thanks for watching.
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