News Flash: Taxes to Increase for Most Americans
By Mel Miller
The above is not the headline you will see in the financial press today, but is the reality.
The fiscal bill passed by Congress on January 1st on a 257-167 vote in the House and 89-8 vote in the Senate averted the Sequester (aka: Fiscal Cliff), but the vast majority of workers will still see their payroll checks decline in 2013.
The press appears to be focused on the agreement that reinstates the tax cuts which expired on December 31st on individual taxable income up to $400,000 and the combined income of married couples up to $450,000. In essence, this part of the bill makes permanent the temporary Bush era tax cuts for 98% of Americans.
However, the elimination of the temporary two-percentage point payroll tax cut will have the most immediate and largest economic impact on American workers. The payroll tax reduction passed in 2010 and was extended twice—the latest being February 2012. The Social Security Tax portion of payroll taxes will revert to the 6.2% rate from the current 4.2% rate. Workers will notice this 2% tax increase immediately—in their next paycheck.
According to the nonpartisan Tax Policy Center in Washington, 77.1% percent of U.S. households will face higher taxes in 2013 due primarily to this payroll tax increase. The tax will impact all earnings up to $113,700 in 2013. It is estimated that the elimination of the tax cut will raise more than $100 billion in 2013 for the U.S. government.
Tough decisions lie ahead for Congress. Spending cuts and the need to raise the debt ceiling were not addressed in the current bill and will need to be within the next two months. For now, let’s enjoy the stock market reaction and rejoice that Congress was at least able to come together on taxes.
Both sides are complaining about the bill. It must be a good bill!
Happy New Year!
Posted: January 2, 2013