That’s because the deal reached in Washington didn’t extend a two-year, 2 percent cut in payroll taxes that fund Social Security and Medicare.
While the deal did keep income tax rates from going up for almost all Americans, that distinction was little solace to local residents told of the payroll tax increase this week.
“If they said they weren’t going to do it, they shouldn’t have done it,” said Anniston resident Patsy Beavers at Quintard Mall in Oxford Wednesday, expressing the confusion many had after much talk in Washington this week of sparing Americans tax increases.
The Tax Policy Center, a nonpartisan Washington research group, estimates that 77 percent of U.S. households will pay 2 percent more in taxes under the deal.
That’s because Tuesday’s bill did not extend a payroll tax holiday, enacted in 2011, that temporarily reduced the amount workers paid in payroll taxes from 6.2 to 4.2 percent. That tax break — meant to stimulate the economy during the recession — was set to expire at the end of 2012 anyway.
Without the extension, workers will pay 2 percent more in payroll tax beginning January.
“That’s our money we work for,” Beavers said. “I just don’t think that’s right.”
The Tax Policy Center estimates that the increase will mean households making between $40,000 and $50,000 will see an average annual tax increase of $579. Households making between $50,000 and $75,000 will see an average tax increase of $822. Workers making $20,000 will pay around $153 more in taxes this year.
The increase could have been higher, however. Had a deal not been struck Tuesday, the Tax Policy Center estimated that taxes on the average American household would have risen by about $3,500 annually.
“I thought this was the major mistake in the agreement,” said Chuck Marr, the Director of Federal Tax Policy at the Center on Budget and Policy Priorities, a Washington-based nonprofit public policy organization. “The payroll tax was ignored ... it was intended to be temporary, but to me it was the wrong time to have it expire.”
Marr said that by some estimates, not extending the payroll tax cuts — which will take money out of workers paychecks — could take about six-tenths of a percent off of the U.S. gross domestic product growth next year.
“I think for people who tend to live paycheck to paycheck, it will especially have a major affect on their spending,” Marr said. “... So we think it was a mistake.”
“I think it’s going to hurt a lot of people, because everything costs more now. It just costs so much to live now,” said Courtney Morris of Ball Play, taking a break from shopping at the mall. Morris said that while she had heard of the payroll tax holiday before, she had no idea it would not be extended, or that her taxes would be going up.
Morris, a college student whose husband works as an engineer at Honda, said that any tax increase matters because of her young child, who has severe food allergies.
“We’ve had a lot of medical expenses this year because of her allergies,” Morris said. “So any money out of our pocket hurts.”
Mel Smith from Eastaboga said outside of Books-A-Million on Wednesday that while the 2 percent increase won’t affect her all that much, it will be “bad for the average person.”
“But I don’t depend on the government to take care of me. I depend on God, so it doesn’t bother me that much,” Smith said.
According to reports by the Associated Press, President Obama did discuss extending the payroll tax holiday during the first negotiations with House Speaker John Boehner, but the matter was soon dropped and had little support from either Democratic or Republican legislators.
The AP reported that Republicans were leery of extending the tax cuts because it added to the deficit, and Democrats were reluctant to support it because those cuts come directly out of the Social Security fund.
The bill will raise taxes for couples making more than $450,000 and individuals who make more than $400,000, and it extended unemployment benefits for those actively looking for work for another year.
Staff writer Eddie Burkhalter: 256-235-3563. On Twitter @Burkhalter_Star.