Fiscal Cliff Deal Will Raise Taxes On 77 Percent Of Americans: Tax Policy Center Analysis

This story only captures a small part of the new taxes households face in 2013. But, let us begin with this headline:

Fiscal Cliff Deal Will Raise Taxes On 77 Percent Of Americans: Tax Policy Center Analysis

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.

So, we start 2013 with "back to the old" tax increases on 77 percent of households. Personally, I didn't support the payroll tax "holiday" anyway — Social Security and other benefit programs should be "pay-go" (pay as you go) at worst and actuarially-based investment programs at best. I called the holiday "fiscal malpractice" and continue to consider such great political stunts horrible policy.


Adding to the annual deficit and the long-term debt provided minimal (if any) stimulus to the economy and the long-term consequences are likely outweigh any fractional boost to the Gross Domestic Product.

The bad news is that families suddenly "missing" $1000 are going to notice. You remove $30 or so from a paycheck and that's a tank of gasoline, a dinner, a shirt, cheap shoes, or discount jeans. People with lower incomes are going to cut spending because they won't have a choice. If there had been no tax holiday, we wouldn't be pondering the psychological effect of a return to normal rates.

In addition to the return to the old payroll tax rate:
  • State taxes and local taxes, in various forms, are increasing nationally. 
  • Affordable Care Act taxes on medical devices begin to take effect.
  • Health care premiums will increase, as riskier individuals enter the market. 
We do need to increase revenues to pay off the debt amasses over the last half century. (Yes, there was a lower annual deficit at various times, but even the "balanced budget" of the Clinton years was an illusion of gimmickry — and the debt was not lowered, only the deficit.) We want more and more, without paying for it. Sorry, but the nation is broke.

I do struggle with tax issues, but I know we're not going to cut government spending as dramatically as I desire, nor are we going to shift spending to genuinely stimulative and essential services. We could be investing in infrastructure or meaningful research, but fixing the Interstate system isn't sexy. No, we'll raise taxes, not cut spending until we're in an even more dramatic crisis, and continue to accelerate our downhill slide.

Repeatedly, I've argued for saner tax policies (won't happen), wiser spending (won't happen), and more personal responsibility (won't happen).

The "Fiscal Cliff" deal is a sad joke. It is a 250-page pile of pork, waste, tax increases, and avoidance of the serious issues the nation faces. The public, unfortunately, only knows there was an agreement and President Obama was the "winner" politically. The nation loses, though, when you read the bill.

That a "simple" agreement is 250 pages with lots of special giveaways to chosen industries and groups should remind us that Washington is broken… and broke.

I expect 2013 to be a lot like 2011 and 2012. Not a good thing.


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