Taxes

Despite Deal, Most Americans Get Hit by Tax Hike

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Slap forehead

As pointed out on Reason 24/7, the fiscal cliff deal may have spared most Americans from an income tax hike, but the majority of us are taking a big hit in terms of increased Social Security payroll taxes. That's because temporary relief from some of the burden of that tax expired at the end of 2012, and the feds are quietly anticipating increased revenue as the bulk of American workers glance at their pay stubs and notice an extra bite missing. That can be a big deal because, as the Tax Policy Center tells us, as of 2007, two-thirds of taxpayers paid more in payroll taxes than in income taxes.

The same organization told the Chicago Tribune that the vast majority of Americans are about to get hit pretty hard by the largely under-the-radar tax hike.

While the tax package that Congress passed will protect 99 percent of Americans from an income tax increase, most of them will still end up paying more federal taxes in 2013.

That's because the legislation did nothing to prevent a temporary reduction in the Social Security payroll tax from expiring. In 2012, that 2-percentage-point cut in the payroll tax was worth about $1,000 to a worker making $50,000 a year.

The Tax Policy Center, a nonpartisan Washington research group, estimates that 77 percent of American households will face higher federal taxes in 2013 under the agreement negotiated between President Barack Obama and Senate Republicans. High-income families will feel the biggest tax increases, but many middle- and low-income families will pay higher taxes too.

Households making between $40,000 and $50,000 will face an average tax increase of $579 in 2013, according to the Tax Policy Center's analysis. Households making between $50,000 and $75,000 will face an average tax increase of $822.

If it makes you feel any better, soaring payroll taxes are nothing new. In fact, they've been taking a growing chunk of Americans' paychecks ever since entitlement programs were dreamed up. Says the ever-helpful Tax Policy Center, "Congress has raised the Social Security tax rate 21 times and the Medicare tax nine times since the inception of each program."

Soaring payroll taxes

Oh, but those entitlement programs are worth every penny, right?