Despite deal, taxes to rise for most Americans

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.
Associated Press
Jan 2, 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.

 

Comments

Dr. Information

No new taxes...not one red cent for you middle class people......Obama 2008. Oh, wait...thats not a new tax.....Obama 2016. Ha, ha ha....fooled you twice....Obama 2016.

The Answer Person

George Bush said the same thing.

However, as a true American I do not mind paying my share of taxes to finance our wonderful country and all of the advatages that we take for granted here. People who do not seem to enjoy their lives here should investigate other countries and take advatage of what they offer to their citizens.

Happy New Year!

The Big Dog's back

Good thing rmoney wasn't elected or we would have been paying more taxes while the rich paid even less.

Justme...

That payroll tax holiday was always considered a holiday - by everyone. Of course we have to start paying it again or we won't be funding SS. Its not a new tax.

There you go again

The idea to think about with new taxes is where the money will be used. I venture to say people are willing to pay their fair share but what are we financing? Without enough spending cutbacks I fear that the entitlements will get bigger along with our tax rates. No word from the president on spending cuts or new job creation. That worries me!

Kimo

Yo Dr......

"Ha, ha ha....fooled you twice....Obama 2016. "

Same style

How those pension changes working out for you???

Contango

@ Kimo:

How is the Fed stealing from savers in order to keep rates low been working out for your cds?

Hope you had enough in the Mkt. S&P was up 13% for 2012.

Contango

Good to know that Pres. Obama approved of 98% of the temporary Bush era tax cuts and fought to make them permanent.

He owns 'em now. Guess the U.S. will just have to borrow the balance needed to fund our growing deficits.

$20 trillion in deficits here we come - send the bill to our kids and grandkids.

Anyone who feels that it's their patriotic duty to pay more in taxes can send the U.S. Treasury a check - they won't refuse it.

That old fossil Warren Buffett still pays a lower percentage in taxes than his sec'y.

SamAdams

When we talk about "new taxes," we're not talking about the end of the so-called "tax holiday." We're talking about the five new Obamacare taxes that went into effect yesterday. We're talking about the increases in capital gains and estate taxes. We're talking about more and more complications in the tax code when politicians SHOULD be simplifying it.

Sure, is it nice the "Bush tax cuts" are now permanent for a lot of us? Yes. But they were more than offset by the increase in Medicare taxes deducted from every paycheck. And rest assured, there's more to come!

Washington has GOT to cut spending. What does it take to get people to grasp that simple concept? The gods know the politicians don't get it. In the fiscal cliff deal ramrodded through the House at the last hour, there were also millions of dollars in breaks for Hollywood and NASCAR (who don't need it), while millions of dollars in aid for Hurricane Sandy victims (who DO need it) was tabled. $41 in taxes for every $1 in cuts. And what does our Dear Leader do? Flies back to Hawaii to finish a vacation that will now cost the American taxpayer upwards of $7 million.

As far as I'm concerned, THAT'S where the cuts should start: With needless luxury vacations (Camp David's already paid for; Chicago is supposedly his home); with undeserved perks; and with every last measure overflowing with pork!

Contango

Not surprisingly, as America's favorite community organizer, pretty much all Mr. Obama knows is how to spend.

Interesting tidbit in govt. waste:

"A cargo train filled with biofuels crossed the border between the US and Canada 24 times between the 15th of June and the 28th of June 2010; not once did it unload its cargo, yet it still earned millions of dollars."

"The companies 'made several million dollars importing and exporting the fuel to exploit a loophole in a U.S. green energy program.'"

http://www.zerohedge.com/news/20...

Just send the bill to our kids and grandkids and keep kickin' that can toward the "fecal canyon."

2cents's picture
2cents

Ha Ha Ha, that is so funny! Only run by government, next is health care!

44846GWP

Winnie, I can cut and paste a site that says Hitler escaped Germany and lived in Brazil after the war. "Don't make it so".

Contango

Zippy:

So Pres. Obama has obviously assured you that there are no billions of dollars worth of waste, fraud or abuse of taxpayer money in govt. programs?

In the "fecal cliff" deal:

"Michigan Democrat Debbie Stabenow was able to retain an accelerated tax write-off for owners of Nascar tracks (cost: $78 million)"

Obama "stimulus" money?

http://online.wsj.com/article/SB...

KURTje

Never lived it. Saw on internet. That alone qualifies it as truth. ekoj

OMG.LOL.WT_

If it's on the net, it's gotta be true....:)

Dr. Information

Proven fact....everything the government touches, it ruins.

Contango

@ Zippy:

Ya know, on second thought, I gotta 'kinda' agree.

On the weekends I sometimes watch Pres. Obama's "Your Weekly Address" on http://www.whitehouse.gov/

I don't believe a (bleepin') thing he says. :)

Metalist

The Social Security tax (FICA) holiday may not have been a good idea to begin with, but it did put money in people's wallets to spend immediately. In any case, it could not continue forever, since Social Security is already underfunded.

I believe that the biggest drag on the economy from this whole tax mess is the uncertainty. People just do not make big commitments when they feel uncertain about the risks involved. Investments are big commitments and even the largest corporations are run by, believe it or not, people.

Since tax rules and rates can have a huge effect on the profitability of a venture, decision makers at companies large and small are reluctant to invest when tax law is so unpredictable. Congress and this administration need to get their collective acts together, behave like grownups and put together a plan.

SamAdams

Two ideas on Social Security:

1. Set the income cap higher for Social Security. Leave it where it is as far as employer contributions go, but continue the same percentage for the employee up to, say, a few hundred thousand.

2. Means testing for Social Security benefits. If somebody is getting an income of half a million dollars a year in retirement (whether through clever savings, investing, etc., inherited wealth, whatever), their contributions prior should go into a "kitty" to help keep the system solvent. (And I'm talking INCOME here, not net worth -- non-liquid assets shouldn't count as income because they're not.)

Contango

@ SA:

IMO, the fact that the rules need to modified in order to "save" it, glaringly points out that it is a Ponzi (pyramid) scheme. And all pyramid schemes eventually collapse.

Set the benefit age at 100 - problem solved. :/

Regardless, Medicare is the larger problem and it is in much worse fiscal shape than SS.

arnmcrmn

Why should someone pay into it because they are rich and get nothing out of it? Instead, how about only paying back what people paid in per individual account.

OMG.LOL.WT_

I think most of us know that SS is a tax on the working to pay for the dignity of the retired. I would not call that a PONZI. I see it as the younger generation squealing to high heaven cause they don't want to pay. Spoiled brats. And, by the way, SS is taxable above a minimum, so more or less means tested.

Contango

@ OMG.LOL.WT_:

SS is forced theft so that the polticos can play favorites and fast and loose with the till.

Good for the youth for not wanting to have their money stolen from them and given to the oldsters as political favors. Maybe it'll cause the corrupt system to collapse even faster!

Give back what was stolen from me; I can invest it and get a much better ROI.

You do know that the authoritarian Otto von Bismarck, designed the original system don't you?

OMG.LOL.WT_

Wow, Otto von Bismark, must really be bad, cause he was GERMAN and NONE of them are any good. Hmmm, Busch, Reagan, u.v.m. sound kinda GERMAN to me.
I can envision the society you want to live in. We will always have the poor so let them die. Old people have a duty to die. The view of Dick Lamm, That old ex-Senator from Wyoming and a lot of others.

Contango

@ OMG.LOL.WT_:

Bismarck was "Prussian."

A generational war is brewing - you wrote it yourself.

Imagine an increasingly changing ethnic and racial citizenry, having much of the efforts of their labor taxed away in order to support millions of little old white ladies with medical care and retirement benefits in nursing homes.

In 2012, the avg. annual nursing home cost is over $90K and the majority of residents get it "free" through Medicaid.

Good luck with the future solvency of your corrupt Ponzi schemes.

OMG.LOL.WT_

Otto Eduard Leopold, Prince of Bismarck, Duke of Lauenburg (1 April 1815 – 30 July 1898), simply known as Otto von Bismarck, was a conservative German statesman who dominated European affairs from the 1860s to his dismissal in 1890.

OMG.LOL.WT_

Otto Eduard Leopold, Prince of Bismarck, Duke of Lauenburg (1 April 1815 – 30 July 1898), simply known as Otto von Bismarck, was a conservative German statesman who dominated European affairs from the 1860s to his dismissal in 1890.

As for the rest of your dire predictions, How did this country ever survive when the top income tax rate was 92%?

Contango

@ OMG.LOL.WT_:

Don't believe everything you read on Wiki. It's good as a primer, but little else.

"The man who did most to unite the German states was Otto Von Bismarck. He was the Prussian Chancellor and his main goal was to strengthen even further the position of Prussia in Europe,"

http://www.bbc.co.uk/bitesize/hi...

Why don't you research the political reasons why Bismarck started an old age benefit program?

Through tax deductions, NO ONE ever paid 92% of their income in taxes.

The Big Dog's back

You so pick and choose winnie.
http://www.bbc.co.uk/history/his...

Fromthe419

Socialism only works until you run out of other people's money.

OMG.LOL.WT_

@ Contango I'm sure you know more than Wiki.
You should open a web site, Kinda like snopes, be the last word on the truth.

Contango

OMG.LOL.WT_ wrote:

"I see it as the younger generation squealing to high heaven cause they don't want to pay. Spoiled brats."

Kindly explain what you mean.

arnmcrmn

I see it as a younger generation who can read between the lines and see that without a fix, its going to dry up.

Personally, Id rather invest MY MONEY MYSELF. I can make 100x as much as the government would ever return to me.

KURTje

Winnie have your folks & you give back your SSI. Besides $7.35 is big money - the younger people don't warrant SSI either according to many. ekoj

Contango

So, Pres. Obama removed the 2% payroll tax cut for working Americans, causing them to lose more take home pay and they called the legislation the:

"American Tax Payer Relief Act of 2012" ?????

Oh the irony!!!!

Dr. Information

Im seeing yet another nice chunk out of my paycheck. Less to spend, less money in the economy overall. Of course I will be using every tax break that I can find to try and offset it.

Tax Deductions 101 here I come.