WASHINGTON – Nearly 90 percent of Americans would face higher taxes next year if Congress lets the nation hurtle over the fiscal cliff, the year-end precipice of tax hikes and spending cuts that threatens to throw the nation back into recession.
A study published Monday by the non-partisan Tax Policy Center finds that taxes would go up by a collective $536 billion next year, or about $3,500 per household, reducing after-tax income by more than 6 percent – an unprecedented tax increase.
The hit would vary significantly by income level, the study found, ranging from a $412 jump for the lowest earners (a reduction of 3.7 percent in after-tax income) to $120,000 for the top 1 percent (a 10.5 percent bite). Middle-income households – those earning between $40,000 and $65,000 a year – would see their taxes go up by an average of $2,000, the study found, leaving those families with 4.4 percent less money to spend.
For most taxpayers, the bulk of the increase would be triggered by the expiration of tax cuts enacted in 2001 and 2003 during the George W. Bush administration. The expiration of President Obama’s payroll tax holiday, which shaved 2 percentage points off the 6.2 percent Social Security tax, comes in a close second.
But the lowest earners would be hit hardest by the expiration of tax breaks enacted as part of Obama’s 2009 economic stimulus package, the study found. The stimulus includes a temporary expansion of the earned income tax credit and the child tax credit for working families. And it temporarily bumps up a two-year, $1,800 tax credit for college tuition to four years and $2,500.
The fiscal cliff turns out to be quite complicated, said Donald Marron, director of the Tax Policy Center, the result of an accumulating snowball of temporary tax provisions.
The fiscal cliff refers to changes in current laws that are all set to strike in January, triggering the sharpest reduction in the federal budget deficit in more than 40 years.