If Payroll Tax Cuts Expire, Here's What Happens...

...according to economists, who share their forecasts with WaPo
By Kate Seamons,  Newser Staff
Posted Dec 22, 2011 9:30 AM CST
Speaker of the House Rep. John Boehner, R-Ohio, second from left, holds a meeting with the conference committee on the payroll tax cut on Wednesday, Dec. 21, 2011 in Washington.   (AP Photo/Evan Vucci)

(Newser) – We know the "what": The payroll tax cut is set to expire within days, meaning changes to jobless benefits and doctors who treat Medicare patients will kick in, and the average American will miss out on $40 a paycheck. The Washington Post explores the "what does it mean" side of things, discussing the consequences with economists. Should the policies be extended, about $140 billion would get pushed into the economy. In coming up with their calculations, economists have to make some assumptions about what Americans would do with that $140 billion, but the Post reports that growth would likely slow by 1% to 1.5%, and between 500,000 and 750,000 new jobs that would have been created won't be.

With the extension, economists are pegging next year's economic growth at 2% to 3%, and say that if it's below 2%, the jobless rate could rise. If it drops as low as 1%, we'll hit a "stall speed" that could trigger a new recession. The Post observes that the 2011 tax cut helped safeguard America from the effects of things like Japan's earthquake and higher oil prices; without it, we could find ourselves more vulnerable to, say, the mess in Europe. But full-fledged panic doesn't have to start until, oh, Jan. 16, says a Goldman Sachs economist. "If reinstated by mid-January, the effects on disposable income from a lapse in the payroll tax cut ... could be mostly reversed before the end of the month." (Read more payroll taxes stories.)

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