January 5, 2013

Fiscal Cliff Protects ‘the 99 Percent’ From Income-Tax Hikes? Hardly

Filed under: Economy,MSM Biz/Other Ignorance,Taxes & Government — Tom @ 10:37 am

On Wednesday, as President Obama signed — er, auto-penned — the legislation preventing the onset of the “fiscal cliff” passed by Congress the previous day, the establishment press was busy understating its impact. A Friday evening Wall Street Journal editorial (note: not a regular news report) in today’s print edition lays out the gory details.

But first, I will cite four examples of coverage which pretended that 99 percent of Americans won’t see their income taxes increase in 2013.

First, an unbylined Associated Press report at least took note of the fact that a large majority of Americans will see a payroll tax increase this year, but blew it on the income-tax impact (bolds are mine throughout this post):

Fiscal cliff avoided, but most Americans will still pay more federal taxes this year

While the tax package that Congress passed New Year’s Day will protect 99 percent of Americans from an income tax increase, most of them will still end up paying more federal taxes in 2013.

… The Tax Policy Center, a nonpartisan Washington research group, estimates that 77 percent of American households will face higher federal taxes in 2013 under the agreement negotiated between President Barack Obama and Senate Republicans. High-income families will feel the biggest tax increases, but many middle- and low-income families will pay higher taxes too.

Households making between $40,000 and $50,000 will face an average tax increase of $579 in 2013, according to the Tax Policy Center’s analysis. Households making between $50,000 and $75,000 will face an average tax increase of $822.

“For most people, it’s just the payroll tax,” said Roberton Williams, a senior fellow at the Tax Policy Center.

The TPC’s estimated “average” is very misleading. The numbers cited are as low as they are only because many public employees are exempt from Social Security taxation, and because retirees don’t pay Social Security taxes on their monthly pension payments or retirement plan distributions. I’ll bet that the “average” impact in the income ranges cited among full-time workers who pay Social Security taxes is over $800 in the $40K-$50K group, and well over $1,000 in the $50K-$75K group.

At BusinessWeek (or “Business Weak,” as I prefer to call it), Peter Coy demonstrated the class warfare bias so often seen there in the following paragraph:

The Fiscal Cliff Deal and the Damage Done

Congress voted to permanently preserve the Bush tax cuts for roughly 99 percent of taxpaying households, but the rate increase for the 1 Percent has infuriated antitax purists, who vow to exact more spending cuts in a couple of months, when the U.S. faces the triple threat of a debt ceiling, postponed automatic spending cuts, and expiration of the law that keeps the government funded.

At the LA Times, Lisa Mascaro and Kathleen Hennessey went with “rounghly 99%”:

House approves ‘fiscal cliff’ deal, rescinding broad tax hike

… The deal, largely negotiated by Vice President Joe Biden and Senate Republican Leader Mitch McConnell (R-Ky.), had passed the Senate early Tuesday morning. It blocked income tax hikes for roughly 99% of households, but allowed rates to rise for those with incomes above $400,000 for individuals and $450,000 for couples.

Reuters also went with the 99% claime in its earlier reports, as seen in this Google News search result obtained this morning:

ReutersOnFiscalCliff99percentGoogle010513

But the linked unbylined report as currently presented at CNBC’s web site doesn’t contain a 99% reference at all, instead citing the following provisions:

* Permanently extends tax cuts enacted in 2001 under former Republican President George W. Bush for income below $400,000 per individual, or $450,000 per family. Income above that level would be taxed at 39.6 percent, up from the current top rate of 35 percent.

… * Caps personal exemptions and itemized deductions for income above $250,000, or $300,000 per household.

The final bulleted item is why the wire service saw the need to change its original 99% reference. Everyone else who has gone with the 99% claim should also revise what they’ve reported, as the Wall Street Journal’s editorial explained in a Friday evening editorial appearing in Saturday’s print edition:

The Stealth Tax Hike
Why the new $450,000 income threshold is a political fiction.

Anyone still need a reason to abandon “grand bargains” and deals negotiated between this President and GOP Congressional leaders? Here it is: The revival of two dormant provisions of the tax code means the much ballyhooed $450,000 income threshold for the highest tax rate is largely fake.

The two provisions are the infamous PEP and Pease, which aficionados of stealth tax increases will recognize immediately as relics of the 1990 tax increase. Those measures, which limit deductions and exemptions for higher-income taxpayers, expired in 2010. The Obama tax bill revived them this week. It isn’t going to be pretty.

… The Senate Finance Committee informs us that in effect the loss of the personal exemptions, currently $3,800 per family member, can mean a 4.4 percentage point rise in the marginal tax rate for a married couple with two kids and incomes above $250,000. A family with four kids in that income range faces about a six percentage point marginal rate hike. The restored limitations on itemized deductions can raise the tax rate by another one percentage point.

High-income Americans with incomes of more than $1 million may lose up to 80% of their itemized deductions for home mortgage payments, health care, state and local taxes—and charities. Cue the local symphony’s development office.

Add it together and families in the 33% tax bracket could see their effective marginal rate paid on each additional dollar earned rise to above 38%.

… Democrats are advertising the higher $400,000-$450,000 threshold as a victory for affluent taxpayers in blue states. But with PEP and Pease these Democrats are hammering their own constituents via the backdoor.

Taxpayers in blue states claim roughly twice as much in itemized deductions as those in red states. Income tax rates are steeper in California and New York than Texas and Utah.

Both parties appear to be banking on ignorance: Democrats as just noted, and Republicans, given that a letter from Mitch McConnell’s campaign quoted in a separate Associated Press report brags: “In the end, he ensured that over 99 percent of Kentuckians will not pay higher income taxes.”

That could conceivably be true for “Kentuckians,” but I’ll bet that McConnell’s staff didn’t try to prove it. It certainly isn’t the case for the country as a whole.

Two or three times as many Americans (probably closer to if not greater than the latter) as Washington and most of the establishment press want us to believe will be paying more in federal income tax, while virtually everyone who works in the private sector is seeing a 2-point hike in the payroll tax. As the Journal asked in its editorial’s opening: “Anyone still need a reason to abandon “grand bargains” and deals negotiated between this President and GOP Congressional leaders?” I sure don’t.

Cross-posted at NewsBusters.org.

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2 Comments

  1. The exemption and deduction phaseout hits NY CA and a few other high income tax states the worst. Good, they voted for it. I was actually voting for the cliff because it would hit low income with some tax. Sure it would have cost me but it wouldhave lowered my mmarginal rate since I am currently in the income range where the child tax credit phases out. Btw it is not tied to inflation and result in a bump of 5% to your tax rate.

    Comment by Scott Landmann — January 5, 2013 @ 12:34 pm

  2. #1, sorry it took so long to get to your comment.

    You could not be more correct, esp given how much hype Obama et al put into their $40 a paycheck lie about the FICA tax when it was about to expire earlier.

    Comment by Tom — January 7, 2013 @ 7:47 am

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