The heated fiscal cliff negotiations are over — for now — so it's time to assess your wallet. You probably understand the centerpiece of President Obama's much maligned offer to Republicans, which raised income taxes on the wealthiest Americans by allowing the Bush-era tax cuts to expire for the highest brackets. (Obama was aiming to increase taxes on individuals making more than $250,000 per year, but eventually settled on a threshold of $400,000, and $450,000 for couples.) Buried within the bill that the House passed last night, however, is a provision that a majority of Americans will begin to feel immediately: the expiration of a payroll tax break introduced in 2010. This means some 77% of Americans will pay a bigger portion of their income to the federal government, reports The New York Times:
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.
The good news, according to non-partisan Tax Policy Center (whose report the Times cites), is that very few non-wealthy households will face a net increase in income taxes. The center "calculated that less than 5 percent of families earning $200,000 to $500,000 will actually pay more." Which pretty much aligns with what President Obama said at the White House late last night — that he "will sign a law that raises taxes on the wealthiest 2 percent of Americans while preventing a middle-class tax hike that could have sent the economy back into recession and obviously had a severe impact on families all across America."