President Barack Obama wasn’t lying when he said he’d raise taxes on the wealthiest Americans if reelected — but it won’t be just the top wage-earners who will be handing over more to Uncle Sam in 2013.
Under a last minute Capitol Hill agreement expected to avert the much-feared ‘fiscal cliff’ disaster that has dominated politics in recent weeks, working Americans across the board will see a little extra of their income collected in the form of a federal tax starting immediately. No matter what your annual salary may be, US workers will have to part with an additional 2 percent of their paycheck in order to cover the cost of Social Security.
While Congress did act in a matter that will keep income taxes from rising on middle-America, in doing so they allowed a temporary reduction in the Social Security payroll tax that was enacted under President George W. Bush to expire. Extensions on that tax break have allowed Americans to hold onto more of their income during the last several years in lieu of sending it to cover the cost of the Social Security welfare program, financed by a 12.4 percent tax on wages up to $113,700. During 2011 and 2012, Bush-era tax cuts kept the share of US workers’ at only 4.2 percent, with employers responsible for the rest. That reduction expired on Wednesday, however, and with no action taken by Congress it will increase to its old standard.
Starting immediately, US workers will lose 6.2 percent of their paychecks in order to fund Social Security. The Associated Press says this will cost a typical American family earning $50,000 annually around $1,000 in 2013.
The Tax Police Center, a nonpartisan think-tank based in DC, expects that the return to the 6.2 percent standard will see an extra $100 billion added to the economy in the new year. According to the AP, that won’t mean too much to lower- and middle-class America, but will impact the paychecks of top wage earners but quite a bit: households earning over $1 million annually will see their taxes increase by around $170,000 because of the expiration.
"If you're rich, you're almost certain to get a big tax increase," Roberton Williams of the Tax Policy Center explains to the AP.
Meanwhile, the majority of Americans will be spared by tax hikes elsewhere. The last minute deal agreed on by the House and Senate will see income taxes go up for individuals making over $400,000 a year and families earning over $450,000. Those wage earners will see their income taxes go up from 35 percent in 2012 to 39.6 percent in 2013.
Even when all is said and done, though, it won’t be an ending that Washington will be able to call a certain success. The Congressional Budget Office says the fiscal cliff deal hammered out this week will add around $4 trillion to the national deficit during the next decade.
==========
Tax Credits for Low-Income Families
When times get tough in low-income households, the food budget is usually the first thing families cut. We can’t end hunger as long as people lack the financial resources they need to put food on the table.
A series of tax cuts will expire at the end of 2012, including two provisions that are critical for low-income working families: the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). These tax credits boost household earnings and lift millions of people out of poverty each year.
The Earned Income Tax Credit is a refundable tax credit that supplements the wages of low-income workers. The more wages people earn, the more benefits their families receive until a certain point when the benefits begin to decline and finally disappear. People apply for this tax credit when they complete their income tax returns. In 2010, this credit lifted 5.4 million people out of poverty—including 3 million children.
The Child Tax Credit provides financial support for working families with children. The credit is available for children under age 17 to families earning at least $3,000. Families can receive a refund of 15 percent of their earnings above $3,000 up to $1,000 per child. The CTC is a partially refundable tax credit families apply for when they complete their income tax returns. In 2009, the CTC lifted 2.3 million people, including 1.3 million children, out of poverty.
Millions of Americans continue to feel the effects of the recession—and an alarming number are poor and hungry. Nearly one in six people lived in poverty in 2010 ($22,113 for a family of four), including 22 percent of children and more than one in four children under age 5. More than one-third of the U.S. population was poor or near poor in 2010 (living below twice the poverty level).
Unfortunately, a job doesn’t guard against poverty. In 2010, 10.7 million people with jobs lived below the poverty line. A full-time minimum-wage earner makes only about $14,500 a year. We need a growing economy, more good jobs, and measures—such as these tax credits—that ensure working families can support their families.
What's Happening in Congress?
Read the latest news on Tax Credits
Updated July 23, 2012. Congress goes on summer recess on Aug. 6, 2012.
Taxes are a hot topic in Washington, but the focus remains on tax cuts for the middle class and the wealthy. The importance of the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) is getting lost in these discussions. When these credits do come up, it’s usually because they’re being targeted for cuts.
The House of Representatives twice passed bills that included cuts to the CTC. At the end of 2011, the House included a cut to the CTC as a way to pay for extending unemployment insurance and the payroll tax cut. The final bill enacted by the House and the Senate did not include the CTC cut, but the House again passed that provision as a part of the budget reconciliation bill earlier this spring. Fortunately, the Senate did not take up that bill, so the cut has not become law. However, we’re likely to see these proposals continue to appear as Congress keeps looking for ways to pay for other bills.
The 2001 and 2003 tax cuts expire at the end of this year, and Congress is in the midst of debating which parts to extend. The Senate is about to vote on a proposal that would continue the tax cuts through 2013 for incomes up to $250,000. This proposal is expected to include the current EITC and CTC benefit levels.
Shortly after the Senate votes, the House will vote on an alternative proposal. That bill would extend the 2001 and 2003 tax cuts through 2013 for nearly all incomes, even those above $250,000. However, it would not continue the current EITC and CTC benefit levels, effectively raising taxes on low-income working families.
What's Our Message?
Create a circle of protection around critical tax credits for low-income working families. Any extension of the 2001 and 2003 tax cuts must also continue the current EITC and CTC benefit levels, including the 2009 improvements.
No comments:
Post a Comment