Posted at: 01/02/2013 4:24 PM
Updated at: 01/02/2013 5:24 PM
By: Ray Levato
In a last minute, down-to-the wire vote, Congress finally agreed on a deal Tuesday night to avoid the fiscal cliff. The deal prevents a tax hike for most people and will keep jobless benefits for nearly $2 million Americans. But despite the deal, you'll still be paying more to Uncle Sam.
If the deal that averted the Fiscal Cliff protected 99% of Americans from an income tax hike, then why will 77% of us pay more in 2013?
That's the estimate from the non-partisan research group, The Tax Policy Center in Washington. The reason is that the social security payroll tax is reverting back to what it was before the President and Congress gave all wage earners a tax break after the recession. The thinking was that extra money is people's pockets would spur the economy.
Before 2011, the social security payroll tax was 6.2% for all wages up to a cap. That cap is now about $117,000. The temporary tax cut brought the tax down to 4.2%. So now it's going back up to 6.2%.
Financial analyst George Conboy of Brighton Securities said, “But this isn't really a change. We've paid the same social security tax for years. And in 2011 and 2012, there was a special tax break that was temporary. The temporary break has expired.”
For someone earning $30,000 a year, the 2% increase in social security tax would mean another $600 going to Uncle Sam. For someone earning $50,000 a year, the increase is 2% of $50,000 or $1,000. Someone at $100,000 would pay another $2,000 in social security taxes.
Conboy said, “With the average household seeing and increase of about $20 a week, it's unlikely to meaningfully affect their household budget. Nobody wants to pay more, but almost everybody in the United States will pay more.”
Conboy says social security needs to be funded.
Conboy said, “During this two year temporary tax break on social security, the government has been making up the difference out of the general fund. So the feds gave us a tax break from their right pocket and a tax increase from the left pocket. The fact that no one in Washington really talked about social security taxes going back up is because the social security fund needs the money badly. And with this legislation, they will get it.”