View Mobile Site
 

Ask the Expert

Signal Photos

 

Many will see taxes rise from ‘fiscal cliff’ deal

Bill passed Tuesday by Congress sets budget cut showdown within 2 months

Posted: January 2, 2013 5:53 p.m.
Updated: January 2, 2013 5:53 p.m.
 

Though the country’s fall from the so-called fiscal cliff proved to be short lived, the truce agreed to by Republicans and Democrats this week will still result in tax increases for about three-fourths of Americans, according to estimates.

The majority of new federal income tax increases will fall on wealthier households and individuals.

Households with a combined income of more than $450,000 and individuals with an income greater than $400,000 will see their income tax rates rise 4.6 percent, according to the bill approved by Congress Tuesday.

That amounts to an average income tax increase of more than $14,000 for households with incomes between $500,000 and $1 million in 2013, according to an analysis from the Tax Policy Center, which describes itself as a non-partisan tax research firm.

That average increase balloons to more than $170,000 in 2013 for households making more than $1 million, according to the center.

Though households and individuals with incomes below those thresholds will not see federal income tax increases, they may pay additional taxes.

All total, households making between $40,000 and $50,000 will face an average tax increase of $579 in 2013, according to the Tax Policy Center.

The center estimates households with incomes between $50,000 and $75,000 will see, on average, $822 in new taxes in 2013.

The average household income for Santa Clarita between 2007 and 2011 was $83,579, according to the U.S. Census Bureau. The statewide average over that same period was $61,632.

Local accountant Michael L. Green, of the Michael L. Green Tax & Financial firm, said getting the bill passed was “a relief.”

“But this will still have effects on a substantial number of people in the next few years,” Green said.

One such effect, and a reason why lower- and middle-income individuals will see their taxes rise, is because of an increase in Social Security contributions.

A Social Security payroll tax cut was passed in 2010 as a way to increase workers’ take-home pay.
That tax cut was allowed to expire at the end of 2012, meaning the amount withheld from workers’ wages to fund Social Security will increase from 4.2 to 6.2 percent, Green said.

One financial benefit of the fiscal cliff bill comes from changes to the alternative minimum tax.

That tax was originally envisioned as a way to assess taxes on wealthier individuals, according to Green. But every year the tax would have to be revised and the revisions approved to keep pace with inflation.

As part of the bill approved Tuesday, the alternative minimum tax will be automatically tied to inflation.

“This could actually end up being a relief for a number of people,” Green said.

For Californians, the federal tax increases come on top of additional increases in income and sales taxes from Proposition 30, which was approved by voters in November and took effect Tuesday.

Under Proposition 30, the state sales tax increased from 7.25 to 7.5 percent, though additional sales taxes can be levied by counties.

The Santa Clarita Valley’s sales tax rate now stands at 9 percent.

Proposition 30 also raised income taxes by at least 1 percent for anyone earning more than $250,000 in the state. The new tax rates apply retroactively to any income earned in 2012.

The federal “fiscal cliff” bill will also extend national policies on dairy prices through September, which will prevent milk prices from doubling, according to Rep. Howard “Buck” McKeon, R-Santa Clarita.

The measure also freezes a pay raise for members of Congress that was instituted by President Barack Obama as part of a larger pay raise for federal employees, McKeon said.

Though Democrats and Republicans were able to hammer out a deal on tax increases that Obama is expected to quickly sign, the approved legislation does not address mandatory spending cuts.

Rather, the legislation extends the deadline for addressing those reductions for another two months, setting the stage for another potential partisan clash over which parts of the federal budget to cut.

That debate could occur around the same time as discussions to approve an increase in the nation’s debt ceiling — a Congress-approved mark that limits how much debt the country can carry at one time.

The current debt limit, set at $14.3 trillion, was surpassed earlier this week. That limit was only agreed to after a protracted partisan struggle that saw congressional Republicans refuse to raise the debt limit without promises of spending cuts.

The debate dragged on so long that the nation came close to defaulting on its debt, and the credit rating agency Standard & Poor’s downgraded the nation’s credit rating.

Obama has previously said he will not negotiate “with Congress over whether or not they should pay the bills they’ve already racked up through the laws they have passed.”

The Associated Press contributed to this story.

Lmoney@signalscv.com
661-287-5525

 

 

Comments

Commenting not available.
Commenting is not available.

 
 

Powered By
Morris Technology
Please wait ...