77 percent of households will face higher federal taxes this year
WASHINGTON (Jan. 2, 2013) — Congress approved a plan late Tuesday to avert the fiscal cliff, but many Americans will still face a broad increase in taxes for the first time in at least 20 years.
The tax package protects 99 percent of Americans from an income tax increase, but most of them will still end up paying more federal taxes this year.
The American Taxpayer Relief Act of 2012 – negotiated by Vice President Joe Biden and Senate Minority Leader Mitch McConnell, R-Ky. – prevented tax rates from increasing for all but the wealthiest Americans, the Post reported, but both sides decided to leave the payroll tax out of the agreement.
[pullquote_left]High-income families will see the biggest tax increases, but many middle- and low-income families also will pay higher taxes.[/pullquote_left]
In 2011, a payroll tax holiday was enacted as a temporary measure to boost economic growth. It expired at the end of 2012 and was not part of the new tax package. That means payroll taxes will increase by 2 percent for every American worker. In 2012, the tax holiday was worth about $1,000 to a worker making $50,000 a year, according to the Associated Press.
The Tax Policy Center, a nonpartisan research group, estimates that 77 percent of American households will face higher federal taxes this year under the tax package. High-income families will see the biggest tax increases, but many middle- and low-income families also will pay higher taxes, the AP said.
How much more will you pay? Households with an average income of $40,000 to $50,000 will face an average tax increase of $579; those making between $50,000 and $75,000 will see an average increase of $822, according to the Tax Policy Center. (For most Americans, the only increase they will face is the payroll tax increase.)
The Senate overwhelmingly approved the deal Tuesday; the House voted at 10:45 p.m., approving it 257 to 167 and sending it to President Barack Obama for his signature. The tax package extends most of the Bush-era tax cuts for individuals making less than $400,000 and married couples making less than $450,000.
The measure also extends benefits to 2 million unemployed workers who were about to lose their federal checks. It also will delay for two months automatic cuts to the Pentagon and other agencies that had been set to take effect Wednesday, the Washington Post reported.
“This agreement will … grow the economy and shrink our deficits in a balanced way – by investing in our middle class, and by asking the wealthy to pay a little more,” President Obama said. “What’s more, today’s agreement builds on previous efforts to reduce our deficits.”
“The lower tax rates, an expanded Child Tax Credit, and marriage penalty relief will provide certainty for 114 million households and together will prevent the typical family of four from seeing a $2,200 tax increase,” the White House said in a release.
A fact sheet at whitehouse.gov provides an in-depth look at the agreement. It can be viewed here.
According to the president, the American Taxpayer Relief Act of 2012:
– Permanently extends middle class tax cuts;
– Raises income tax rates on the wealthiest;
– Extends Emergency Unemployment Insurance benefits for 2 million people;
– Extends expansions of the Child Tax Credit, Earned Income Tax Credit, and the President’s new American Opportunity Tax Credit;
– Extends renewable energy incentives, the R&E tax credit and other business incentives;
– Avoids a 27 percent cut to reimbursements for doctors seeing Medicare patients for 2013 by fixing the sustainable growth rate formula through the end of next year;
– Saves $24 billion, half in revenue and half from spending cuts which are divided equally between defense and non-defense, in order to delay the sequester for two months;
– Restores the 39.6 percent rate for high-income households, as in the 1990s;
– Returns Capital Gains tax rates to what it was under President Bill Clinton, 20 percent (Counting the 3.8 percent surcharge from the Affordable Care Act, dividends and capital gains would be taxed at a rate of 23.8 percent for high-income households);
– Reduces tax benefits for households making over $250,000 (for singles) and $300,000 (for couples);
– Raises the estate tax rate on estates worth $5 million per person, from 35 percent to 40 percent;
– Locks in $620 billion in high-income revenue over the next 10 years; and
– Extends the farm bill through the end of the fiscal year, averting a sharp rise in milk prices at the beginning of 2013.
How they voted
Many House Republicans had vowed to not raise taxes, which made reaching a fiscal cliff agreement difficult. For much of Tuesday, the measure appeared to be headed for defeat, the Post said.
“In the end, GOP lawmakers decided not to take a gamble that could force the nation to face historic tax increases for virtually every American — and leave House Republicans to take the blame,” the Post said.
The bill drew 85 votes from House Republicans and 172 from Democrats; 151 Republicans voted no, making the GOP tally fall short of a majority of the caucus.
Of Kentucky’s delegation, McConnell, Rep. Ben Chandler, D-Ky., and Rep. John Yarmuth, D-Ky., voted yes, while Sen. Rand Paul, R-Ky., and Republican representatives Brett Guthrie, Ed Whitfield, Hal Rogers and Thomas Massie voted against the bill.
World markets rose on news that an agreement had been reached. U.S. stocks also rose Wednesday morning. The Dow Jones Industrial Average (DJI) rose 259 points to 13,364 and the S&P 500 Index (GSPC) climbed 30 points to 1,456.
Just before noon, the DJI was at 13,331, the S&P was at 1,451, and the Nasdaq was at 3,088.