Fiscal Cliff
8:50 am
Thu January 3, 2013

In Florida, Payroll Tax Means It's Still A Cliff

Congress' fiscal cliff compromise may have protected Florida's middle class wage earners from a massive income tax increase, but the small tax increase it didn’t address remains a threat to the recovering state economy.

CLIFF NOTE: A leading economist says the two percent payroll tax increase will drain $6.5 billion out of the Florida economy.
CLIFF NOTE: A leading economist says the two percent payroll tax increase will drain $6.5 billion out of the Florida economy.

Starting Jan. 1, a two percent payroll tax holiday that President Obama put in place in 2010 expires, meaning that the paycheck deduction that funds Social Security will increase by that same two percent.

That's an income tax hit of almost a thousand dollars a year for the median Florida household, economist Sean Snaith told the Miami Herald, and the aggregate is a $6.5 billion-dollar reduction in consumer purchasing power. Snaith is the director for Institute for Economic Competitiveness at the University of Central Florida.

With 7.1 million Florida households seeing a tax increase, the result will be a contraction in the state economy, Snaith said.

“It’s going to provide a headwind in terms of our recovery that’s less money spent on child care, groceries or clothing,’’ Snaith told the Herald/Times. “The net effect is it’s going to be a drag on growth.’’

All of the state's Congressional Democrats and many of its Republicans voted for the fiscal cliff bill, many saying that its flaws were outweighed by its cancelation of a massive income tax hike. State military bases were also spared funding cuts and emergency unemployment compensation -- also due to end in the tumble over the cliff -- has been restored for millions of  unemployed. That will keep about $1.4 billion flowing first into Floridians' pockets and then into the state economy.

But the compromise bill still brings problems to Florida, as Mary Ellen Klas reports in the  Herald:

The payroll tax is just one of the hits Florida will feel from the compromise. Another will be a slow but steady impact on the state’s safety net hospitals.

Under the bill, Congress voted to halt a $30 billion cut in payments to physicians who treat Medicare patients that was scheduled to take effect this week. The solution calls for hospitals that treat those patients to pick up half the tab over the next 10 years.

That worries Florida’s public and teaching hospitals, which serve a larger percentage of Medicare patients than hospitals in other states. These Florida hospitals are already facing $654 million in annual cuts thanks to the Affordable Care Act on top of $1 billion in cuts imposed on them by state lawmakers over the past decade.

“The American people cannot afford, nor do they deserve, this massive New Year’s tax hangover,’’ said Rep. Mario Diaz-Balart, R-Miami, one of five Florida Republicans who joined with eight Democrats in the congressional delegation to vote for the compromise. “While this bill has its flaws, it immediately and permanently cuts taxes on 98 percent of the American people and 97 percent of small businesses.”