Capitol Region residents may have avoided the dreaded fiscal cliff, the superstorm of automatic tax hikes and budget cuts that would have shocked the fragile economy.
But guess what? Your paycheck taxes are still going up. Immediately.
Despite assurances by President Obama, taxes will rise on the middle class because the final deal on the fiscal cliff doesn’t include an extension of the payroll tax holiday. That means that the paychecks for more than 160 million Americans will be 2 per cent smaller starting in January, as the payroll tax will jump from 4.2 per cent to 6.2 per cent.
And a huge number of those hit will be middle class or working poor.
The president had proposed extending the payroll tax holiday, or something similar, in the first phase of negotiations. But he dropped that demand weeks ago as his stimulus proposals shrunk rapidly. He never reconsidered the idea, and Republicans didn’t want it in there in the first place.
The payroll tax holiday is going away, which means a $115 billion fiscal contraction this year directly from the pocketbooks of ordinary Americans. While the fiscal cliff deal will save middle-class families an extra $2,000 in tax pain by extending the Bush tax cuts, anyone who earns $50,000 a year will still be hit with a $1,000 higher payroll tax burden in 2013.
Capitol Region families can fight back by stop overpaying their taxes, i.e., giving the goverment an interest-free loan. Then taking that money and investing it prudently.
Dave Balog teaches sound family financial practices. email@example.com. 355-0967.