Nearly 90 percent of Americans would face higher taxes next year if Congress permits the nation to hurtle over the “fiscal cliff,” the year-end precipice of tax hikes and spending cuts that threatens to throw the nation back into recession.
A study published Monday by the nonpartisan Tax Policy Center finds that taxes would go up by a collective $536 billion next year, or about $3,500 per household, reducing after-tax income by about 6.2 percent.
But the impact would vary significantly by income level, the study found, ranging from a $412 jump for the lowest earners (a reduction of 3.7 percent in after-tax income) to $120,000 for the top 1 percent (a bite of 10.5 percent). Middle-income households — those earning between $40,000 and $65,000 a year — would see their taxes go up by an average of $2,000, the study found, leaving families with 4.4 percent less money to spend.
For most taxpayers, the bulk of the increase would be triggered by the scheduled expiration of tax cuts enacted in 2001 and 2003 during the George W. Bush administration. The expiration of President Obama’s payroll tax holiday, which shaves 2 percentage points off payments to Social Security, comes in a close second.
But the lowest earners would be hardest hit by the expiration of tax breaks enacted as part of Obama’s 2009 economic stimulus package, the study found. Those losses would include an expansion of the earned income tax credit and the child tax credit for working families, as well as a $2,500 credit for college tuition, which would shrink to $1,800 and be available for only two years instead of the current four.
The fiscal cliff is the name given to a collection of changes in current law that are all set to strike in January. The bulk involves the scheduled expiration of tax policies — or, in the case of new taxes in Obama’s health-care initiative, levies that are set to take effect for the first time, such as a new 3.8 percent tax on capital gains for high-income households.
The cliff also includes $110 billion in automatic spending cuts at the Pentagon and other federal agencies. The Tax Policy Center report only examines the effect of tax changes.
One striking conclusion of the study: Although the political debate has focused on the Bush tax cuts and whether they should be expired for high earners, the tax portion of the fiscal cliff is not monolithic. Instead, the Tax Policy Center identified nine categories of taxes, each with its own set of political considerations.
Researchers then ranked the changes according to the likelihood that they will take effect. Their conclusion: The payroll tax holiday will almost certainly be allowed to expire, decreasing the average worker’s paycheck by about $80 a month.
However, analysts concluded, Congress is highly unlikely to let the alternative minimum tax expand to strike an additional 20 million families in April. Households making from $65,000 to $500,000 would take the hardest hit.
“That’s something that’s unlikely for Congress to want to embrace,” Tax Policy Center director Donald Marron said at a morning briefing for reporters.
Let’s see if the Rs/TPers play chicken or brinksmanship.
Keep the current tax rates for people who actually work, let them revert for those who just sit back and do nothing but sit on their investments.
Do you mean trust fund babies? Because some people with investments DO work, or they HAVE worked. If assets were never invested (earning no interest) a dollar would buy less and less and not keep up with inflation. Even the money in the government social programs is (should be) invested, or it would eventually be worth nothing as it sits in a “bank” waiting to be paid out. Buying a house is (should be) investing. Investing is not a bad thing. I wish I had some money to invest….
No, investing isn’t a bad thing, but working isn’t either.
That might be a good idea if we reduced the 35% tax paid on their investments by the companies they invested in. But then that would increase their actual investment income and only make you more angry and jealous.
Oh right, I forgot they all pay a 35% rate because no deductions, loopholes, credits, etc. exist.
And that still doesn’t address my point. The store I buy a wrench from has already paid a tax on the product — so why do I have to pay one too?
Higher tax rate on $0. is a moot point.
DUH! Nobody should be surprised that there will be higher taxes. The money to pay for all the social programs has to come from somewhere. The government can keep on selling and buying its own bonds and putting more cash into circulation, but it knows there should be a limit.
You realize we spend like a trillion a year on Defense right? It’s our largest expense.
We should enact a national sales tax and put all the proceeds directly towards the debt. Food and medicine would be exempt, of course.
For the sake of disclosure, I’m an “independent”, but generally vote Democrat. (I believe that employees should have the right to organize if they wish, i.e. join a union.) That said, I think both parties are guilty of this dangerous game of brinksmanship in order to further their political agendas. (Agendae?) Congress and the administration should all be ashamed of this miserable failure to carry out their responsibilities for the country.