As promised by the White House, the heaviest burden will fall on top earners making $400,000 a year or more. Still, a full 77% of all American households will be paying higher taxes.
“I was frankly a little surprised because I thought that was something they would keep at least for another year until the economy gets out of the doldrums,” said Professor of Economics at American International College, John Rogers
The increase stems from a 2% payroll tax cut enacted during the recession that was allowed to expire for 2013. For the last 2 years, workers paid a 4.2% Social Security tax. Now it’s back up to 6.2 percent. So, someone making the national average of $41,000 a year will now see $16 taken out of their check every week… totaling about $820 less take-home pay a year.
Clearly higher revenue to the federal government is the goal. But as Rogers point out, what’s still not clear is whether this deal will work in the long term.
“There’s basically no fundamental agreement on long term solutions coming out of this last round of negotiations. It was just an agreement to disagree and move forward.”
Tuesday, as the house debated the Senate passed bill, Representative Richard Neal (D-MA) acknowledged the pay roll tax increase will hit nearly everyone – but said eventually come retirement, most will see it back through social programs.
“Recall that the payroll tax is different in the sense that everyone pays it and as everybody pays it the payroll tax is utilized overwhelmingly for Medicare and Social Security so eventually you draw the same benefit.”
Discussions on how to deal with the massive deficit will happen in about two months when congress is forced to tackle the debt ceiling towards the end of February.