IBJNews

Despite deal, taxes to rise for most Americans

Back to TopCommentsE-mailPrintBookmark and Share

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 significantly 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.

ADVERTISEMENT

  • nailed it
    to the below comment, you nailed it with the corporate contributions. that is killing government as now companies back a candidate and then expect unlimited special interest funds if they win. obama has perfected this. to the other comment, yes, the rich are getting richer. this is exactly why higher taxes by obama will do nothing but hurt the middle class. the rich have the opportunity to deduct more and write off large amount lowering effective tax while the middle class continues to get hurt with higher taxes. Obama can continue to preach lower taxes, but he is raising taxes on anyone working. How stupid do liberal have to be to not understand that higher corporate taxes are passed to consumer or middle class. you think obamacare won't hurt middle class. libs can continue to blame the rich, but until we get a president that is actually for the middle class instead of poor people who refuse to help themselves or the mega rich we won't see improvement. under obama family income is dropping, taxes are rising, and unemployment is worsening. libs can continue to have their head in the sand and watch the liberal media spin a story of a recovering economy and the brilliance of obama, while complaining about the middle class hurting and then continuing to vote obama
  • Connect the Dots
    The facts are that productivity has increased at a rate of 80% since 1978. Only slightly lower than the 97% rate of increase in the 30 yrs prior to 1978. HOWERVER, the difference is prior to 1978 Average Wages also increased at the same clip. BUT after 1978 Average Wages went FLAT. Who took the $$$? THE CORPORATIONS ARE STEALING THIS PRODUCTIVITY. It belongs to those that created it. Not the rich. This is what is destroying our country and both Democrats and Republicans feed at the Corporate Trough. And until corporate campaign contributions are made illegal the Middle Class will continue to starve and the country will continue to get worse. Connect the dots, this is simple Econ 101 stuff.
  • Uh-huh Charlie...
    The incomes of the rich continue to rise dramatically because they just keep finding a way to work harder and harder, and then even harder than that. Meanwhile, the wages for the lower and middle classes have not risen for decades, actually decreased somewhat, because they just aren't willing to work hard like they did previously.
    • not only a liar
      our president is not only a liar, but lacks an ounce of leadership, is arrogant, and is destroying the idea that hard work leads to success. immigrants used to come to america because of that dream, now they come here illegally for the free stuff our president loves to give away. americans have become an entitlement society, this is why after the last 4 years of crap, obama can win another election.
    • Liar
      Our president is a liar. If you work, you will be paying more taxes no matter your class. He said that people earning under 400K would not see a tax increase. I sure the hell do not earn that, and I will be paying almost $1000.00 more dollars in taxes in 2013. The liar also keeps saying that he and the dumbocrats will be more open to compromise. Where are the spending cuts in this bill that the dumbocrats offered up as a compromise? This moron who does not even know that there are bayonets on guns still is a liar. I hope all the college girls that want free rubbers are pleased!
      • Love the first two comments
        Yes, if only we had elected more Republicans, we'd all have lower taxes, greater prosperity, and the debt would be erased.
      • Don't forget Flex Plan Tax
        For those of us with Flex Plans, we have been able to contribute $ 3600 a year without taxes. Starting yesterday, the maximum contribution is $ 2500 so now we all have $ 1100 in additional taxable income for which we will be paying taxes.
      • Nobody Gets It
        The real tax is the fact that Middle Class Incomes have not risen in real terms since 1978. The problem is corporate campaign contributions--they need to be stopped. Proof is in recent books by award winning authors such as Hedrick Smith, David Cay Johnston, and Thomas Stanton. Proof? Stanton's book on the bank industry and the collapse of 2008 is all you need to read---even if all you do is watch his interview on BookTV. Absolute shame what corporations are doing to the Middle Class in America. It isnt taxes ruining America.
      • This is the Dems solution
        The Dems got what they wanted and the Republicans did not. So, if things start going bad for YOU, please be sure the blame the correct party. THE MESS THAT WE ARE IN IS NOW ON THE DEMOCRATS!!!!! IF YOU VOTED FOR OBABMA OR ANY DEMOCRATIC SENATORS, ENJOY THE NEXT FEW YEARS. THIS IS WHAT YOU ASKED FOR? GOD HELP US!
        • Obama Way
          Higher taxes for all is the Obama way. its not just the rich, but we'll all be paying more to government. They'll spin it as a way to control debt, but in reality they'll just spend more and waste more. At some point media will have to pin the lousy economy on Obama and quit blaming Bush. Obama is discouraging work and creating a society of gov dependance. Higher taxes is just the start to a food stamp loving prez. Elections have consequences, and we're about to find out just how horrible Obama is when we go bankrupt and unemployment only gets worse.

        Post a comment to this story

        COMMENTS POLICY
        We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
         
        You are legally responsible for what you post and your anonymity is not guaranteed.
         
        Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
         
        No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
         
        We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
         

        Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

        Sponsored by
        ADVERTISEMENT

        facebook - twitter on Facebook & Twitter

        Follow on TwitterFollow IBJ on Facebook:
        Follow on TwitterFollow IBJ's Tweets on these topics:
         
        Subscribe to IBJ
        ADVERTISEMENT