CBS Money Watch explains that the only people who are actually guaranteed to pay more in taxes this coming year are normal working class Americans, thanks to the payroll tax. The higher income earners, they say, have ‘tax reduction strategies’ that can help lower their taxes so that at the end of the day they aren’t in the top bracket where taxes got raised.
So basically, the ‘protected Middle Class’ that Democrats claim they stand for are the ones guaranteed to get gouged:
CBS MONEY WATCH – The “fiscal cliff” clash in Washington may leave middle- and lower-income Americans paying more in taxes while preserving a range of tax breaks for various industries and businesses.
After Congress opted to let a “holiday” on Social Security taxes lapse, under the bill signed into law on Wednesday working Americans will see a 2 percent increase in taxes on their gross salaries or wages. Make $50,000? That’s another $1,000 in taxes withheld every year. Someone making $15,000 would pay an additional $300. But because payroll taxes are capped for incomes greater than $113,700, people whose income exceeds that threshold pay $2,274 more a year.
It’s a regressive tax: The higher the income, the smaller percentage the increase represents. For everyone, meanwhile, it’s a net increase.
Will the rich really pay more?
The top marginal rate — the tax rate on the highest income brackets — rose to 39.6 percent, from 35 percent, for annual incomes over $400,000 for individuals and over $450,000 for households. Rates on long-term capital gains, dividends and estate tax rates for top earners also rose.
But given available tax reduction strategies, the impact of these increased rates can be greatly modified.
For example, in 2009 (the last year for which the IRS has available statistics) more than 790,000 tax returns fell under the then-top marginal rate of 35 percent. But after credits and deductions were applied, the average tax paid on adjusted gross income was 25.9 percent. The percentage paid on so-called modified taxable income — “the actual base on which tax is computed,” according to the IRS — was 29.7 percent.
In other words, relatively few taxpayers whose income reaches the top income tiers pay close to the listed top rate. It will be years before there is data to show whether the actual tax paid by top earners will come close to the 39.6 percent rate, or even the old 35 percent one.
In effect, the only ones guaranteed to pay more in taxes this coming year are individuals who aren’t top earners.