Get ready to pay more in taxes, that is, if we fall off the so-called fiscal cliff (and perhaps even if we don't).
An analysis by the nonpartisan Tax Policy Center says most households can expect an unprecedented tax increase next year - an average $3,500 per household - if every tax cut enacted by Congress since 2001 does, in fact, expire.
Middle-income households (those earning between $39,790 and $64,484) would pay an average tax increase of $2,000. Lower income households (those earning up to $20,113) would pay an extra $412 . The richest households would get hit the hardest: those making $506,210 or more would pay an additional $121,000 or more in taxes.
That's if Congress and President Obama fail to reach agreement on extending the cuts, and at the moment, that's anyone's guess. Lawmakers have stalled on these issues all year, though it's unlikely that they'll let all the scheduled tax hikes take effect, the analysis predicted. But some may very well return.
The two biggest increases would come from the expiration of the Bush-era tax cuts of 2001 and 2003 and the temporary 2 percent cut in Social Security taxes.
If you're scratching your head, wondering how you'd get by on less take-home pay, you're not alone. In the last two decades, workers' earnings have essentially remained flat. Median household income in 2011 (in inflation adjusted dollars) was $50,054, about the same as in 1989, when it was $50,624, according to Census data.
Here's what would happen if President Obama and Congress failed to reach a deal on the tax cuts before they expire Jan. 1, 2013, according to the analysis:
- 88 percent of households would end up with higher taxes.
- Tax revenues would rise by more than $500 billion in 2013 while government spending would drop sharply.
- The changes would cut the federal deficit in 2013 and in subsequent years, but the tightening "could well push the country back into recession" next year.
- The estate tax would hit more than 10 times as many estates as in 2012.
Photo credit: Philip Taylor PT via flickr.com
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