Despite deal, taxes to rise for most Americans

Jan 2, 7:49 AM EST - WASHINGTON (AP) — While the tax pack­age that Con­gress passed New Year’s Day will pro­tect 99 per­cent of Amer­i­cans from an income tax increase, most of them will still end up pay­ing more fed­eral taxes in 2013.

That’s because the leg­is­la­tion did noth­ing to pre­vent a tem­po­rary reduc­tion in the Social Secu­rity pay­roll tax from expir­ing. In 2012, that 2-percentage-point cut in the pay­roll tax was worth about $1,000 to a worker mak­ing $50,000 a year.

The Tax Pol­icy Cen­ter, a non­par­ti­san Wash­ing­ton research group, esti­mates that 77 per­cent of Amer­i­can house­holds will face higher fed­eral taxes in 2013 under the agree­ment nego­ti­ated between Pres­i­dent Barack Obama and Sen­ate Repub­li­cans. High-income fam­i­lies will feel the biggest tax increases, but many mid­dle– and low-income fam­i­lies will pay higher taxes too.

House­holds mak­ing between $40,000 and $50,000 will face an aver­age tax increase of $579 in 2013, accord­ing to the Tax Pol­icy Center’s analy­sis. House­holds mak­ing between $50,000 and $75,000 will face an aver­age tax increase of $822.

“For most peo­ple, it’s just the pay­roll tax,” said Rober­ton Williams, a senior fel­low at the Tax Pol­icy Center.

The tax increases could be a lot higher. A huge pack­age of tax cuts first enacted under Pres­i­dent George W. Bush was sched­uled to expire Tues­day as part of the “fis­cal cliff.” The Bush-era tax cuts low­ered taxes for fam­i­lies at every income level, reduced invest­ment taxes and the estate tax, and enhanced a num­ber of tax cred­its, includ­ing a $1,000-per-child credit.

The pack­age passed Tues­day by the Sen­ate and House extends most the Bush-era tax cuts for indi­vid­u­als mak­ing less than $400,000 and mar­ried cou­ples mak­ing less than $450,000.

Obama said the deal “pro­tects 98 per­cent of Amer­i­cans and 97 per­cent of small busi­ness own­ers from a middle-class tax hike. While nei­ther Democ­rats nor Repub­li­cans got every­thing they wanted, this agree­ment is the right thing to do for our country.”

The income thresh­old cov­ers more than 99 per­cent of all house­holds, exceed­ing Obama’s claim, accord­ing to the Tax Pol­icy Cen­ter. How­ever, the increase in pay­roll taxes will hit nearly every wage earner.

Social Secu­rity is financed by a 12.4 per­cent tax on wages up to $113,700, with employ­ers pay­ing half and work­ers pay­ing the other half. Obama and Con­gress reduced the share paid by work­ers from 6.2 per­cent to 4.2 per­cent for 2011 and 2012, sav­ing a typ­i­cal fam­ily about $1,000 a year.

Obama pushed hard to enact the pay­roll tax cut for 2011 and to extend it through 2012. But it was never fully embraced by either party, and this time around, there was gen­eral agree­ment to let it expire.

The new tax pack­age would increase the income tax rate from 35 per­cent to 39.6 per­cent on income above $400,000 for indi­vid­u­als and $450,000 for mar­ried cou­ples. Invest­ment taxes would increase for peo­ple who fall in the new top tax bracket.

High-income fam­i­lies will also pay higher taxes this year as part of Obama’s 2010 health care law. As part of that law, a new 3.8 per­cent tax is being imposed on invest­ment income for indi­vid­u­als mak­ing more than $200,000 a year and cou­ples mak­ing more than $250,000.

Together, the new tax pack­age and Obama’s health care law will pro­duce sig­nif­i­cant tax increases for many high-income families.

For 2013, house­holds mak­ing between $500,000 and $1 mil­lion would get an aver­age tax increase of $14,812, accord­ing to the Tax Pol­icy Cen­ter analy­sis. House­holds mak­ing more than $1 mil­lion would get an aver­age tax increase of $170,341.

“If you’re rich, you’re almost cer­tain to get a big tax increase,” Williams said.

Posted by Randa Wagner on Jan 2 2013. You can follow any responses to this entry through the RSS Feed. Both comments and pings are currently closed.