Economy Watch: Payroll Tax Cut Extension Closer to Vote
- Feb 14, 2012
The end-of-the-year deal on extending the payroll tax cut, which amounts to a stimulus that dares not speak its name, was only a two-month arrangement. Now that the second month of the year is about half over, Washington seemed to be gearing up for another quarrel about an additional extension, but suddenly on Monday the Republican U.S. House leadership said that they are willing to extend the cuts without some of the conditions that they’d been pressing for, such as pay cuts for federal workers.
Without action by Congress, payroll taxes will go up at the end of February by roughly 2 percent—about $20 a week for a household making 50 grand a year. Not a vast sum, but $1,000 over the course of the year, which is enough to stimulate the economy to some degree. The House leadership wants to vote on the extension this week.
The payroll tax cut isn’t the only issue of government revenue and payments kicking around Congress right now. A House-Senate conference committee is also inconclusively gnawing on plans to prevent scheduled cuts in fees paid by the federal government to doctors who treat Medicare patients, as well as the next extension of unemployment benefits for roughly 5 million long-term unemployed people (de facto relief, though that doesn’t dare speak its name either). A number of Democrats, including those in the White House, criticized the Republican efforts to decouple the payroll tax issue from dealing with Medicare payments and unemployment benefits.
Homeowners now eager to remodel
The little-known, but interesting, BuildFax Remodeling Index has spiked in recent months, rising 3.5 percent year-over-year in November 2011 to 137.9, which is its 25th straight month of growth. The index is based on construction permits filed with local building departments across the country, tracking the number of properties permitted. Under the index’s scheme of things, April 2004 = 100; the current number is based on a three-month moving average; and it isn’t seasonally adjusted (though starting next month, BuildFax will release a seasonally adjusted index).
Remodeling activity generally declined with the rest of the economy during the worst of the recession, spending much of the grim 2008 to 2010 period below 100, but even during the dull winter months of 2011, remodeling has been much brisker than in the summers of the previous years. A trend of that kind tends to indicate householder confidence—you aren’t going to remodel a house you’re likely to lose—as well as a willingness to devote discretionary income to such projects, since it’s now considerably harder to tap into home equity for to redo the kitchen or fix up that man cave.
“Residential remodeling in 2011 grew substantially above 2010 rates and remained strong through the end of the year,” Joe Emison, vice president of research and development at BuildFax, noted in a statement. “However, we do expect to see the number of remodeling permits decrease on a month-over-month basis for the duration of the winter.”
Greek situation not quite settled
With the vote in the Greek parliament early Monday morning, the deal was sealed—or was it? The entities holding the bailout funds Greece needs to avoid default on March 20 might still attach more conditions. Among other things, the EU and the IMF are demanding that the political parties that voted for more austerity commit in writing to follow through, no matter who wins the election in April.
Such a promise, to rework an old cliche, might have less value after April than the small cost of the paper on which the promises are written. So the potential for another act in the Greek drama is still very much with us.
Wall Street was feeling fine on Monday, considering that the Greek situation didn’t blow up over the weekend (except in the streets of Athens). The Dow Jones Industrial Average gained 72.81 points, or 0.57 percent, while the S&P 500 upticked by 0.68 percent and the Nasdaq went up by 0.95 percent.