At the beginning of the New Year, an agreement to avoid the “fiscal cliff” scenario, which had received a flurry of media attention was finally reached at the last minute in dramatic fashion. Interestingly, the measure was the first significant bipartisan tax increase since 1990, when former President George H.W. Bush reneged on his “read my lips” promise.
The good news is that the bill’s passage did help most Americans avoid the effective tax hikes had rates been rolled back to the levels in place prior to the passage of the Bush tax cuts. The bad news is that most Americans’ paychecks will still be noticeably lighter in 2013 due to the expiration of the payroll tax holiday, which somehow was not even part of the discussion (!). Guess it should surprise no one that the hashtag #WhyIsMyPaycheckLessThisWeek was a trending topic on Twitter for a week.
Top 5 Facts About the Deal You Need to Know:
- Although the initial plan was to raise taxes on individuals with incomes over $200,000 and household incomes of $250,000, the measure that passed will actually affect individuals making over $400,000 and households making more than $450,000.
- Deductions for individuals making $250,000 and married couples making $300,000 will be capped.
- Measures to cut spending will be delayed for at least another two months.
- The debt ceiling itself and other budget resolutions have yet to be resolved.
- Payroll tax cuts expired, meaning social security contributions have now effectively been raised from the 4.2% rate in place during the tax holiday back to the 6.2% rate that was in effect prior to the passage of the Bush tax cuts.
Thus despite promises to the contrary, the deal that was passed according to the Washington Post still amounts to an additional tax on the middle class! For example, an individual making $50,000 a year will now owe $1,000 a year more in taxes, while an individual making $35,000 annually will owe $700 more.
The bottom line: while our legislators have “successfully” averted the immediate crisis, expect a lot more negotiations in the coming months related to cutting spending, balancing the budget and the looming debt ceiling.
So we want to know, what do YOU think of the fiscal cliff negotiations and the current state of taxation in America?
Image credit: Chris Potter