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Locals caught off guard by smaller paychecks

New Orleans, La.—All over the city, wage earners have been caught off guard. They were not aware the federal payroll tax was reverting to its previous rate and so their paychecks are smaller.

"A lot smaller, especially in this year," said Irene Rogoff.

Actions Congress and the president took to prevent a fiscal cliff did not include extending the payroll tax cut passed in 2010.

"Anyone who's working pays this," said Tulane economist Steve Sheffrin.

Sheffrin said some people will be taken aback by the change, while others will not.

"As of January 1, the two percentage point reduction disappeared, and so now people are paying over six percent, 6.2 percent as opposed to 4.2 percent," he said.

"I don't mind paying more as long as they take care of the elderly, and they need to be giving the elderly raises because they don't get enough to live on," said Herbert Ash, another local wage earner.

Professor Sheffrin said, if consumers tighten their fiscal belts, the economy as a whole will feel it.

"To the extent that people do notice it and do adjust their consumption, there could be some effect on the economy, probably a couple billion dollars, a hundred billion dollars or so for the country as a whole," he said.

Some locals are already cutting back.  "I cannot afford gasoline, okay, and I have house payment, car payment," Rogoff continued.

"If everyone noticed it you could have, you know, a couple tenths of a percentage point reduction in GDP, but it's not clear everyone in fact will react to this," said Sheffrin.

The tax helps fund the Social Security Program.  "Half of it is paid by the employer, and half of it is paid by the employee.  And so in order to stimulate the economy during the recession, the idea was, let's cut payroll taxes because it affects a lot of people," Sheffrin stated.

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