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Taxes rising for most people despite fiscal deal

Posted January 2, 2013

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— 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 cut in the payroll tax – from 6.2 percent to 4.2 percent – 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 news of higher taxes came as a jolt Wednesday to customers at Rude Awakening, a Fayetteville coffee shop.

"Middle-class Americans (who) struggle to get to this middle-class level have now just been plunged again," said Marcia Staples, 49, a mortgage loan officer and single mother. “That’s outrageous. ... and what are we to do? That’s what I’d like to know, government, what are we to do?

"I work in banking, and I talk to people all the time," Staples said. "Finances are the biggest issue with the middle class and below."

For some, however, the news of higher taxes wasn't so hard to swallow.

Payroll tax increase graphic Payroll tax increase irks NC residents

"We have to make the sacrifice. All in this life is not easy," said Diana Wilson, 42, a cook and the daughter of Peruvian immigrants. "We have to sacrifice something, and I think all of our citizens ... need to do something for this country."

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 by 2 percentage points for 2011 and 2012 to encourage consumers to spend more and perk up the sagging economy.

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.

"If you don't have any extra money, I'm not making any money," said John Thompson, 44, who owns a tattoo parlor. "I'm a luxury item. If you don't have expendable cash, you're not getting my product."

Barbara Sizemore, 65, who works part time at a nursing home, said the payroll tax bit might force her to limit her trips to Rude Awakening for coffee.

"Our food prices are going up. I mean, on top of that, it leaves you with less money to spend," Sizemore said. “Instead of raising taxes, we should cut entitlements.”

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.

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  • Karmageddon Jan 4, 2013

    Isn't it funny that John Kerry has more money than Romney but the media ignores that fact

  • josephlawrence43 Jan 4, 2013

    How about the folks that keep sending the same rich folks to the senate and the congress?

    chfdcpt
    Hate to tell you, but they are all rich--National Socialists, Repubs,etc. There ain't no poor people in Congress..

  • chfdcpt Jan 3, 2013

    Neither the Demoplicans nor the Repucrats area at fault for this mess.

    Want to blame someone? How about the folks that decided not to vote?

    How about the folks that keep sending the same rich folks to the senate and the congress?

  • junkmail5 Jan 3, 2013

    Never raise the debt ceiling. Force across the board cuts.
    aspenstreet1717

    You don't appear to understand what the debt ceiling actually is.

    You probably should learn that before trying to discuss it any further, because you're making absolutely no sense so far.

    we ought to all be able to claim CIVIL DISOBEDIENCE when the tax man comes looking us for tax evasion.
    sunshineonmyshoulder

    Have fun in jail!

    Remember- Al Capone murdered tons of people- The government did nothing to him.

    Al Capone avoided paying taxes. He spent the rest of his life in prison.

  • aspenstreet1717 Jan 3, 2013

    Never raise the debt ceiling. Force across the board cuts.

  • junkmail5 Jan 3, 2013

    Paychecks will be less in January than December.-aspenstreet1717

    We should have had across the board cuts-aspenstreet171

    So your plan to fix our massive deficit problem is to collect LESS money?

    What a terrible plan.

  • sunshineonmyshoulder Jan 3, 2013

    Actually, I'm thinking the same way UNBLANKENBELIEVABLE is. I'm changing my withholding allowances this year to have the least amount possible to taken from my payroll check. If I could claim EXEMPT status, I would. This current crop of politicians in Washington are the worst I've seen in...well...forever. They obviously have no clue how precious that taxmoney is to my family. I've had enough! I'll be choosing how to spend as much of my money as possible this year. And...we ought to all be able to claim CIVIL DISOBEDIENCE when the tax man comes looking us for tax evasion.

  • Screw WrAl Jan 3, 2013

    Fiscal cliff TWO,

    in 58 days.

  • aspenstreet1717 Jan 3, 2013

    People that actually work are not interested in tax rates when ever. Smaller paychecks equals less spending. We should have had across the board cuts. Instead we had more dollars from the efficient to the inefficient.

  • mrduffin Jan 3, 2013

    Obama is the problem. If he was not president this would have have happened so it is ALL HIS FAULT.

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