We have calculated and mentioned in this blog that the average household now has an extra $49.57 in its monthly budget or $247.85 through May as a result of the payroll tax cuts passed last December as part of the acronym-resistant Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.   To arrive at this estimate, we started with data from our colleagues at the Bureau of Economic Analysis, who estimated the reduced Social Security contribution rates authorized under the Tax Relief Act boosted overall disposable personal income by $105.4 billion (annual rate) from December to January.  This boost was partly offset by a $38.6 billion increase in federal tax withholdings that resulted from the expiration of the Making Work Pay Credit provision of the American Recovery and Reinvestment Act of 2009. 

The net effect of these two tax changes was a $66.8 billion increase in disposable income, spread over 112.3 million households.  This comes out to roughly $595 over the course of a year or nearly $50 a month.  (A second review of the data shows that we may have short-changed ourselves through overly aggressive rounding.)  Thus, the Tax Relief Act has helped to give a nice extra push to the recovery and has been especially welcome given the higher gas prices faced by consumers so far this year.

~Mark Doms, Chief Economist, U.S. Department of Commerce

June 27th, 2011

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