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A major goal of last December’s Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010 (aka extending the Bush-era tax cuts) was to boost the economy by avoiding scheduled tax increases and, at the same time, adopting a few new tax cuts. Both steps, supporters claimed, would put more money in people’s pockets and boost the still-weak economy. Temporarily extending the Bush-era and 2009 tax cuts and patching the alternative minimum tax staved off the tax hikes. The one-year cut in the FICA payroll taxes that finance Social Security will add about $110 billion to paychecks this year, disregarding the offsetting loss of roughly $60 billion from the expiration of the Making Work Pay credit (MWP). Give people more money and they’ll spend it, thus stimulating the economy, or so the theory goes.
The question is: What will we actually do with this windfall?
A recent candy-themed mailer from my retirement account administrator suggested possible uses for my FICA savings. I could[[{"type":"media","view_mode":"default","fid":"133711","attributes":{"class":"media-image alignright size-medium wp-image-960","typeof":"foaf:Image","style":"","width":"288","height":"300","title":"Diversified options for FICA cut-small","alt":""}}]]
- Spend it (“the patriotic thing to do”),
- Save it (build up an emergency fund or pay down credit card balances), or
- Invest it (increase retirement savings).