Fiscal Cliff Deal – 77 Percent Of All Americans Set To Pay More Taxes

Fiscal Cliff Deal

The President has claimed that the Tuesday night fiscal cliff deal will reduce middle class taxes in America. However, taxes for most Americans will increase in 2013. The tax relief that has been built into the package will add nearly $4 trillion per year for the next 10 years to the existing $16 trillion debt. The fiscal cliff deal passed by the Senate and the Congress will not stop the Social Security payroll tax cut from expiring. This means that more than 75 percent of American households will face a higher federal tax liability in 2013.

President Barack Obama signs the executive ord...
President Barack Obama signs the executive order creating the Middle Class Task Force at the White House. (Photo credit: Wikipedia)

Tax Policy Center’s analysis indicates that families with annual income between $40,000 and $50,000 will have to pay $579 extra middle class taxes in 2013. For those earning between $50,000 and $75,000, the liability will increase by $822. Individuals earning more will have to shell out higher taxes. The Bush era tax rates for individuals earning less than $400,000 and couples earning less than $450,000 have been extended. Those earning more will pay tax at a higher rate.

The highest tax rate will increase from 35 percent to 39.6 percent. Those who fall in the highest tax bracket will have to pay a higher rate of investment taxes at 20 percent. Obama’s health care law could also increase the tax outflow of high income families. Investments of individuals earning more than $200,000 per year and couples earning more than $230,000 per year will attract a new 3.8 percent tax.

According to Tax Policy Center, families with annual income between $500,000 and $1 million will have to pay $14,812 extra tax in 2013. Those earning more than $1 million will have to shell out an additional $170,341. Obama tried very hard to include the payroll tax cut for 2011 and wanted to extend it through 2012. However, Democrats and Republicans were not keen and both agreed to let the cut expire.

Wages as high as $113,700 pay a 12.4 percent Social Security tax. Employers pay half and workers pay the other half. The latter’s share was cut from 6.2 percent to 4.2 percent for 2011 and 2012. This will result in middle class taxes savings of about $1000 a year.

The fiscal cliff Congressional battles have just begun. Over the next few weeks, fiscal cliff agreements relating to debt ceiling and automatic spending cuts affecting the Pentagon will be hammered out. Democrats will continue to push for tax hikes while Republicans will demand spending cuts and entitlement reforms.

Social Security Benefits And The Payroll Tax Cut

Social Security is a government benefit countless people depend on.  This is true for those who have already retired, are approaching retirement, or are just starting out in the work force.  Those who are fully retired depend on Social Security payments to help sustain their livelihood.  Unfortunately, future generations may not have this luxury.

The price of living continues to rise as incomes and Social Security benefits remains relatively the same.  This means the general population will need to find other ways of supplementing their bank accounts.  In the future, the framework of Social Security may resemble a combination of a 401(K) plan and a safety net for those in need.

Another factor which influences Social Security is commonly known as the payroll tax cut.  The payroll tax cut was passed in the year 2010.  For lower wage-earners, the tax cut does not make that much of a difference when it comes to take home pay.  Individuals who earn considerably more do notice a difference.  Congress recently extended the tax cut which, as usual, causes conflicting views in the political world as well as the general public.

Politics tends to be a topic where a lot of varying laws are involved that are not fully understood.  People have a tendency to hypothesize and evaluate when all of the facts are not clearly understood.  The topic of Social Security benefits is one that hits home with nearly everyone.  This is part of the reason why so much attention is given to the payroll tax cut.