The reason is that, while income tax rates have been largely preserved outside of upper income-earners, payroll taxes are going up on everyone by 2%. In 2011, Congress passed a one-year extension of a temporary payroll tax cut, from 6.2% to 4.2%. It's heading back to 6.2%, and not very many people on Capitol Hill were particularly big proponents.
The payroll tax cut has been of mixed merit. Democrats supported it in the past as a "stimulus" measure, intending it to help economic activity in a struggling recovery. Republicans are generally
As the New York Times reports,
Lawmakers’ decision not to reverse a scheduled increase in the payroll tax that finances Social Security, while widely expected, still means that about 77 percent of households will pay a larger share of income to the federal government this year, according to the center’s analysis.
The tax this year will increase by two percentage points, to 6.2 percent from 4.2 percent, on all earned income up to $113,700.
Indeed, for most lower- and middle-income households, the payroll tax increase will most likely will equal or exceed the value of the income tax savings. A household earning $50,000 in 2013, roughly the national median, will avoid paying about $1,000 more in income taxes — but pay about $1,000 more in payroll taxes.
So while President Obama last night claimed that taxes would only be going up for the top two percent of American income-earners, reality is far different. Every American starts work in 2013 with a slightly higher tax burden and every single paycheck is going to be a little bit smaller.
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