Senate leaders rung in the New Year Tuesday by reaching an agreement on legislation designed to avert the so-called "fiscal cliff." That agreement has now been approved by the House by a 257 to 167 vote, and means higher taxes for top earners as well as middle-income families and individuals due to increased payroll taxes.
According to The Washington Post, the measure "would let the top tax rate rise immediately from 35 percent to 39.6 percent on income over $450,000 for married couples and $400,000 for single people."
Although the bill will protect middle income families from an increase in income taxes, the legislation passed Tuesday night will not stave off an increase in payroll taxes. A 2 percent payroll tax cut passed during the economic downturn expired Dec. 31, boosting the tax back up to 6.2. percent for 2013.
The increase will impact approximately 77 percent of households with income up to $113,700, according to the New York Times. This effectively wipes out the potential income tax savings for middle-income Americans, which would have been around $1,000 in 2013 for a household earning $50,000 — roughly the national median. That household will be paying about $1,000 more in payroll taxes.
The Wall Street Journal has an online payroll tax calculator for earners wondering how the adjustment will affect the yearly salary.
The Senate had previously passed the package by an 89-9 vote. While both of Georgia's Republican senators — Saxby Chambliss and Johnny Isakson — voted for the bill, each of the state's eight GOP congressmen voted against it when it was sent to the House.
Of Georgia's five Democratic congressmen, three voted yes, while Rep. John Lewis did not vote as he returned to Atlanta following the passing of his wife, Lillian, on Monday.
Some highlights of the so-called McConnell-Biden plan:
- The payroll tax rate, which is used to fund Social Security, will rise to 6.2 percent from 4.2 percent. For a worker making $30,000 annually, that would mean about $50 less monthly in take-home pay.
- Extends tax cuts in the 2009 stimulus act for five years, including a child tax credit, and an expanded earned income credit.
- Federal unemployment insurance would be extended for a year for 2 million people.
The New York Times reported that the debt limit was not part of the deal. The country officially hit its debt limit Monday, and the Treasury reportedly is undertaking “extraordinary measures” to put off default.
What do you think of the "fiscal cliff" deal? Share your thoughts in the comments.