Posted: Jan 2, 2013 5:59 PM by Erin Steuber
Updated: Jan 2, 2013 6:38 PM
Late last night the House passed the Senate's bill to avoid going over "the fiscal cliff." The passage comes despite objections from many republicans who wanted more spending cuts. Here's what came about from that late-night vote:
1) The bill extends tax cuts for all workers earning less than $400,000.
2) Prevents a tax hike on estates valued at less than $5 million.
3) Unemployment benefits are extended for the next year for some two million people on long-term unemployment.
While Congress did avoid the fiscal cliff, 77% of Americans will be forced to pay higher federal taxes in 2013, effective immediately.
The fiscal cliff bill passed last night does nothing to prevent a temporary cut in the Social Security Payroll Tax, which is now expired.
"As a way to stimulate the economy, Obama had managed to pass a two percent reduction in withholding taxes," said KATC Political Analyst Pearson Cross. "Now that reduction is gone, so basically anyone that pays Social Security is going to see their taxes go up for the first $113,000 in earnings."
The rate will increase by 2%, back to the level it was before the government temporarily lowered the rate in 2011. That adjustment cost the nation about $120 billion a year. So here's how it breaks down:
Americans earning $30,000 a year will take home $50 less each month. And someone earning $40,000 a year will receive $32 less on every bi-weekly check. That adds up to $832 a year. The higher the salary, the bigger the bite.
Payroll taxes are key when it comes to financing Social Security. The break of the past two years forced the government to replenish the funds with borrowed money. That tax break was always meant to be temporary.
"The bill that was just passed raises taxes. A portion of it through the payroll taxes, and a portion of it through income taxes on wealthy individuals," said Accountant John Redd. "But it doesn't really address the spending issue."
To avoid this fiscal cliff, Congress set up new ones.
"I think what they've done is put a short term band aide on a long term problem," said Redd.
In two months they'll need to deal with automatic spending cuts they just delayed, and a fight over the debt ceiling.
"If it's seen we're not taking care of our own financial house, we could very quickly end up like Greece, nobody wants to loan you money, nobody wants to trust you," said Cross. "I don't see that in the near future by any means."