President Obama and Congress passed a tax package on New Year’s Day. According to the Tax Policy Center, the package will be felt by most Americans The most severe impact is an increment in the payroll tax amounting to about $1,000 per worker for those earning approximately $50,000 per year. The existing payroll tax rate of 4.2 percent will be increased to 6.2 percent on the first $113,700 of worker pay.
The Tax Policy Center estimates that households making between $40,000 and $50,000 will face an average tax increase of $580 for this year. Those making between $50,000 and $75,000 will face an average increment of over $800. High income households should expect higher tax rates for ordinary income, capital gains, dividends and the new health care reform taxes. Income tax rates now will rise for families earning $450,000 a year income or more, and individuals making $400,000 a year and up.
The biggest gains for the Treasury aren’t in tax increases alone. It’s in job growth and the revenue from adding taxes from newly hired workers. According to CNN and Fortune magazine, 2013 will be a better year for college graduates with demand growing for degrees earned in engineering, computer applications, accounting and finance. The most dramatic pickup in construction is expected in 2014, with 300,000 more jobs according to an economic analysis by Moody’s. Even state governments are expected to hire again, with new hires projected to increase slightly.
Lawmakers and President Obama have yet to tackle the details of projected cuts in spending, including defense spending. There are cost savings to be achieved from the historic drawdowns of troop levels in Iraq and Afghanistan. In addition,there are other areas for savings Such as military base closings and procurement for things like drone manufacture.
Various ideas have been discussed concerning the migration of Medicaid funding to the states who may be able to administer the program more cheaply. The states have the databases of information for local residents and therefore some duplicate recordkeeping could be avoided or lessened.
One of the biggest areas for potential revenue is excess consumption taxes for junk food, sugary sodas, cigarettes and even marijuana as an outgrowth of legalization in Washington state. Taxing these items would provide a boom for social programs such as Medicaid, which have come under financial stress.
For now, the first fiscal cliff has been avoided. The stock market is rising on the news of a deal between Congress and President Obama. Americans may look forward to a better year for the economy and employment.
The next hurdle will be the federal debt limit.