The Atlantic - 44 minutes ago
Congratulations,
if you're reading this, you survived the fiscal cliff. To celebrate the
occasion, Congress is giving all of us a tax hike -- though not ...
These 2 Tax Charts Tell You Exactly Who Won the Fiscal-Cliff Deal
By 100
Households making between $200,000 and $500,000 saved the most compared to a world where we went off the cliff forever
(Reuters)
Congratulations, if
you're reading this, you survived the fiscal cliff. To celebrate the
occasion, Congress is giving all of us a tax hike -- though not as big a
tax hike as we would have otherwise gotten. Happy New Year?
There's a lot not to like about the fiscal cliff deal, but the biggest thing not to like is the expiring payroll tax cut. As you can see in the chart below, from the Tax Policy Center,
it lowers everybody's after-tax income by at least 1 percent, despite
the bottom 99 percent of the Bush tax cuts getting renewed and rebranded
as the Obama tax cuts.
There
are three big tax stories here, all adding up to modest tax increases
for the bottom 99 percent, and much bigger tax increases for the top 1
percent.
(1) Five-year extension of the stimulus tax credits. The 2009 stimulus expanded the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit,
and the 2012 fiscal cliff deal extended all of them for an additional
five years. These credits subsidize low-income households, particularly
those with children or people enrolled in postsecondary school, and
they're all partially refundable, meaning households can receive them
even if their tax liability is zero -- which is why they're such a big
deal to households earning $20,000 and less. It's a safety net done the way conservatives like it, since households have to work to get these credits.
(2) Expiration of the payroll tax cut holiday.
The worker's half of the payroll tax had been cut two full percentage
points, from 6.2 to 4.2 percent, the past two years. Now that's over. As
I mentioned above, that's why everybody will take home less money in
2013 than in 2012, though it's not as big a deal for households making
$200,000 and over since the payroll tax is only paid on the first
$110,100 of income.
(3) Return of Clinton-era rates (or more) for income over $400,000/$450,000.
The top marginal rate went back to 39.6 percent for income over
$400,000 for singles or $450,000 for couples. Remember, this is a marginal
rate, so the more income you have above the threshold, the harder the
higher rate hits you, which you can see in the much smaller tax increase
for households making half to a million dollars compared to those
making more. The deal also brought back limits on deductions and
exemptions for high-earners, known as Pease and PEP,
for income of individual/joint filers over $250,000/$300,000 and
$375,000/$425,000, respectively. But taxes are higher than they were
under Clinton when it comes to capital gains and dividends -- rates rise
from 15 to 23.8 percent, with the last 3.8 percent due to the Obamacare
surtax, for individual/joint filers making $400,000/$450,000. Remember,
the top 0.1 percent of households account for half of all capital gains, so this is no small thing.
But
as much as the fiscal cliff deal raises taxes on us all, it's not
nearly as much as taxes would have gone up if we had gone over the cliff
for good -- even for households making making a million dollars or
more. The chart below, also from the Tax Policy Center,
shows how much bigger after-tax incomes will be in our world with this
deal versus a world with no deal. HENRYs (high-earner-not-rich-yet)
should buy a late Christmas gift for Congress.
The
big winners of the fiscal cliff deal are households making between
$200,000 and $500,000 a year. They mostly avoided marginal tax
increases, because the threshold for higher rates was set at
$400,000/$450,000, instead of the $200,000/$250,000 President Obama
originally wanted, and they mostly avoided additional Alternative
Minimum Tax (AMT) liability, because Congress permanently patched it. Of
course, these changes helped others too, just not quite as much. The
AMT patch significantly lowered tax liabilities for six-figure
households making less than $200,000, and redefining "middle-class" as
income less than $400,000/$450,000 saved households making more than
that from paying higher marginal rates on income between
$200,000/$250,000 and $400,000/$450,000.
In other words, it wasn't as bad as it could have been, which is enough to give this deal a passing grade.
But don't worry, things will be as bad as they can be when House
Republicans try to force us into voluntary default again in a few
months.
It's cliffs all the way down.
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