We’re Saved from the Fiscal Cliff! Your Taxes are Still Going Up

Well, most of you. And, the less you make, the more it will hurt. The payroll tax reduction, which -as part of the stimulus- took the rate from 6.2% to 4.2%, has expired. This tax affects everybody, but it has a cap – so people who make a lot of money only pay it on the first $113,700 of earnings.

Obama gave up a great deal, conceding that people making $450,000 a year were off-limits for rate increases. More outrageously, cuts to the already highly regressive payroll tax are being allowed to expire, meaning that they will rise from 4.2 per cent to 6.2 per cent. Obama didn’t even fight for them. In his statement Tuesday night, Obama described the bill as “preventing a middle-class tax hike” that could have hurt families and sent the country back into a recession; that is true, but it allowed another middle-class tax hike that could have the same effect. He also said that middle-class families “will not see their income taxes go up.” That is false, unless one goes along with the idea—and most of Washington does—that payroll taxes, which are on income and levied by the federal government, are not federal income taxes.

If you have a pre-tax income of $50,000 per year, the fiscal-cliff deal means that you will pay about a thousand dollars more in payroll taxes in 2013. If your income is $111,000, you will pay about two thousand two hundred dollars more. And if you earn a million dollars you will pay—also two thousand two hundred dollars. (The Wall Street Journal has a calculator.) There is a cap, which means that the working poor and middle class pay a higher proportion of their income than the rich. And the richer one gets, the greater the unfairness.

via The Cliff ‘s Payroll Tax Hike and Obama’s Next Fight : The New Yorker.