Despite Congress’ last-minute deal to prevent Bush-era tax cuts from expiring for people earning less than $400,000 a year ($450,000 for couples), most Americans will still see their taxes rise this year.
The deal passed by the U.S. House of Representatives on Tuesday doesn’t cover a 2% reduction in the Social Security payroll tax that had been effect for the last two years, the Associated Press noted.
Under that temporary tax cut, the payroll tax fell from 6.2% to 4.2%, saving the average American household about $1,000 annually. While there was broad agreement to preserve Bush-era tax cuts, especially for middle-class Americans, neither congressional Republicans nor President Barack Obama pushed to extend the payroll tax cut.
Under the deal struck on New Year’s Day, the top U.S. tax rate will rise from 35% to 39.6%, with taxes on investments also rising for the highest earners. The Tax Policy Center calculates that households with incomes between $500,000 and $1 million will see their 2013 taxes rise by an average of $14,812, while households with incomes over $1 million will have to pay an average of $179,341 more in taxes.
While the higher income tax rate is confined to a small percentage of U.S. taxpayers, the return to a higher Social Security payroll tax rate will hit 77% of American households. Households with incomes between $40,000 and $50,000 will pay about $579 more in taxes this year, while households with incomes between $50,000 and $75,000 will see their taxes rise by $822.
The opinions contained in this column are solely those of the writer.
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