Fiscal Cliff Deal Cuts Average Workers' Paycheck By $1,000

payroll tax hike with fiscal cliff dealThe tax package that Congress passed in the final hour of New Year's Day will protect 99 percent of Americans from an income tax increase, but almost every person will still see a hit to their paychecks.

That's because the legislation did nothing to prevent a reduction in the Social Security payroll tax from expiring. Social Security is financed by a 12.4 percent tax on wages, with employers paying half and workers paying the other half. That was reduced to 4.2 percent in 2011 and 2012, saving a typical family about $1,000 a year. In the deal, that tax break -- always intended as a temporary tax holiday -- was allowed to expire.

More: 2012's Silliest Ideas To Solve The Jobs Crisis

Workers earning the national average salary of $41,000 will be $820 poorer next year, with the cut greater the higher the salary up to $113,700. But Mike Brey, who owns four Hobby Works outlets near Washington D.C., told CNNMoney that it was the lower-wage workers who would really feel the pain.

"These are the people who can least afford it," he said.

President Obama pushed hard to enact the payroll tax cut for 2011 and to extend it through 2012, arguing that it would put money immediately in workers' pockets, easing some of the hardship among middle and lower-income Americans, and helping the economy recover. Most economists agree that the cut provided valuable stimulus, but it was never fully embraced by either party, and this time around, there was general agreement to let it expire.

Only the wealthiest Americans will have to pay a higher federal income tax though.The package passed Tuesday by the Senate and House extends most the Bush-era tax cuts for individuals making less than $400,000 and married couples making less than $450,000.

More: Employees Of Major Hollywood Studios Pirate Movies At Work

Americans above that threshold will see their income tax rate jump from 35 percent to 39.6 percent. High-earners will experience another tax bite this year because of Obamacare, which levies a new 3.8 percent tax on investment income for those making more than $200,000 a year and couples making more than $250,000.

"If you're rich, you're almost certain to get a big tax increase," said Roberton Williams, a senior fellow at the Tax Policy Center.

Many Republicans were deeply unhappy about the tax bump, and the negotiations exposed deep fractures in the Republican leadership. "It looked like they threatened to scuttle the whole thing," NBC's Chuck Todd said Wednesday about Republicans in Congress, "and they ended up helping Barack Obama raise taxes more than any Republican Party in a generation has helped anybody raise taxes, and they got nothing for it."

More: Lying, Unethical Executives: Is This How They Got Started?

Obama emphasized how the agreement protects the vast majority of Americans, who would have experienced a significant tax hike if all the Bush cuts had been allowed to lapse.

He said the deal "protects 98 percent of Americans and 97 percent of small business owners from a middle-class tax hike. While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country."

The income threshold covers more than 99 percent of all households, exceeding Obama's claim, according to the Tax Policy Center, and wealthier Americans will still enjoy the extended lower tax rate on the first $400,000 of their income.

"For most people, it's just the payroll tax," said Williams.

Claire Gordon contributed reporting.


Don't Miss: Companies Hiring Now



More From AOL Jobs

Add a Comment

*0 / 3000 Character Maximum

964 Comments

Filter by:
paulcd

With Social security ,[if you believe the feds] going broke whose bright idea to take a percentage of it out of your check and call it a tax brake.Reducing it just hurt social security more and with the feds raping the account every time it has a surplus just made no sense at all.It is not a "wage" tax it is a tax to supply a program it would have made a lot more sense to reduce the tax on wages and that way they could have kept it that way it did make sense to drop the reduction in social security

January 20 2013 at 8:12 AM Report abuse rate up rate down Reply
jackbgood2jack

We were borrowing the money to make up for the tax break we were getting. That doesn't make sense. Don't blame it on the Cliff deal. You can't live on borrowed money for ever.

January 20 2013 at 7:32 AM Report abuse rate up rate down Reply
nonucantmakemee

he got what he wanted his goal is to destroy America

January 20 2013 at 3:47 AM Report abuse rate up rate down Reply
barryaclarke

So many are looking at this as now getting short changed on their paychecks. Instead, they should be thankful that they saved a $1,000 a year for the past several years. The smart person put some of it away in savings while others just pissed all of it away because they had some extra money to burn in their pockets. So, what do you do with the savings the government handed to you?………………

January 20 2013 at 12:06 AM Report abuse rate up rate down Reply
elwoodlr

The reduction was only long enough to short change people on social security 2 years in a row lol people are so gluable to think for a moment the fica money would not be back in place.
Honestly I think it should have been at 10% to shore up the ss fund and a 2 % medicare increase.
All this talk about Social Security and Medicare entitlment that pure BS . People that are retired and on SS and Medicare the medicare goes up every year for those people each month. The additional cost has to come from the working class not the ones on fixed income that have already paid for Socialo Security and Medcare all their working lifes and monthly for medicare Geeee

January 19 2013 at 11:40 PM Report abuse rate up rate down Reply
a1putwins

No more tax holiday, got to pay to play. I think every worker should pay something even if its just a few dollars.

January 19 2013 at 10:09 PM Report abuse rate up rate down Reply
jamesestrom

Define Average.

January 19 2013 at 9:39 PM Report abuse rate up rate down Reply
goatcars

How do you like your community organizer now???? Lance Armstrong is a paragon of virtue compared to this guy !!!!

January 19 2013 at 8:47 PM Report abuse +3 rate up rate down Reply
1 reply to goatcars's comment
sun1045

Yep

January 19 2013 at 9:23 PM Report abuse rate up rate down Reply
albabyw

And you thought the first four years were good? I suspect that the constitution will be ignored even more perversely in the '2nd half'. God help us. Makes you realize just how gullable people are and hwo they believe what they hear over and over again. How they really don't want to ssek out the truth (too much work). Just meet my needs... I'm sorry, but if you don't contribute- you have no vote. Stop bussing welfare recipients to the polls!

January 19 2013 at 8:18 PM Report abuse +7 rate up rate down Reply
motorbikes

Waking up yet America, learning that Obama talks from the center but leads from the left big time. The only politicians get into office is by gifts they offer you. They got us into this mess think they will get us out no, not until the American people have had enough. if they wanted to make them pay into SS and Medicare. Take away the bonus of check for life and health bennies. See how fast things get fixed. All they have been doing is robbing from the public coffers. Then say we are broke need more taxes. Audit the welfare recipients as required. Just cut spending 1% across the board for 10 years and see how fast the deficit comes down. This country is so dysfunctional it is pathetic. Guess Bernie is thinking how he could parallel his Ponzi scheme to that of the federal government and have it legal.

January 19 2013 at 7:59 PM Report abuse +2 rate up rate down Reply

Search Articles

Picks From the Web