A typical middle-income family making $40,000 to $64,000 a year could see its taxes go up by $2,000 next year if lawmakers fail to renew a lengthy roster of tax cuts set to expire in December, according to a new report Monday.
Taxpayers across the income spectrum would be hit with large tax hikes, the Tax Policy Center said in its study, with households in the top 1 percent income range seeing an average tax increase of more than $120,000, while a family making between $110,000 to $140,000 could see a tax hike in the $6,000 range.
All told, the government would reap more than $500 billion in new revenue if a full menu of tax cuts were allowed to expire. The expiring provisions include Bush-era cuts on wage and investment income and cuts for married couples and families with children, among others. Also expiring is a 2 percentage point temporary payroll tax cut championed by President Obama.
"It's just a huge, huge number," said Eric Toder, one of the authors of the study.
Economists warn that the looming tax hikes, combined with $109 billion in automatic spending cuts scheduled to take effect in January, could throw the fragile economy back into recession if Washington doesn't act. The automatic spending cuts are coming due because of the failure of last year's deficit "supercommittee" to strike a bargain. The combination of the sharp tax hikes and spending cuts has been dubbed a "fiscal cliff."
"The fiscal cliff threatens an unprecedented tax increase at year end," says the Tax Policy center report. "Taxes would rise by more than $500 billion in 2013 -- an average of almost $3,500 per household -- as almost every tax cuts enacted since 2001 would expire."
It's likely that Washington policymakers will allow the payroll tax cut first enacted for 2011 to expire, and Obama is calling for permitting rates on individual income exceeding $200,000 and family incoming over $250,000 to go back to Clinton-era rates of as much as 39.6 percent.
But all sides are calling for the renewal of Bush-era tax rates for everyone else. Without a renewal of those rates, a married couple would pay a 28 percent rate on taxable income exceeding $72,300 instead of the 25 percent rate they now pay. And the 10 percent rate paid on the first $8,900 of income would jump to 15 percent.
The Tax Policy Center is a joint project of the Urban Institute and the Brookings Institution.A new study is detailing how taxpayers across the income spectrum would face whopping tax hikes next year if Washington fails to renew a lengthy roster of tax cuts set to expire in December.
A typical middle-income family would see its taxes go up by $2,000 says the report from the Tax Policy Center, a joint effort of two Washington think tanks.
Households in the top 1 percent income range would see an average tax increase of more than $120,000, while a family making between $110,000 and $140,000 could see a tax hike in the $6,000 range.
The expiring provisions include Bush-era cuts on income and investments and for married couples and families with children, among others.
Also expiring is a 2 percentage point temporary payroll tax cut.