Taxes are going up this week on almost everyone, but one group of top earners will feel the pinch far more than others. The .7 percent.
It's an exclusive club created by President Obama's new tax plan. Already the most progressively taxed nation in the world, the U.S. becomes more top heavy with the new tax code, analysts say.
With income tax hikes concentrated on only those individuals earning more than $400,000 and couples making more than $450,000, about 40 percent of all federal income taxes will now be paid by just .7 percent of all federal income tax returns, according to preliminary numbers from Tax Foundation Chief Economist William McBride.
"We are currently the reigning champion of progressivity. This deal will make our tax code even more progressive," said McBride. "We cannot sustain a situation where the top 1 percent pays 40 percent of the tax burden, while the bottom half roughly on average pays no income taxes."
Previous data showed about 37 percent of the federal income tax burden fell on the top 1 percent, while 41 percent had a zero or negative tax liability. The share of nonpayers, which has doubled since 1990, is expected to stay consistent for at least five years under the deal.
The tax plan approved this week raises the top marginal rate to 39.5 percent on those making over $400,000/$450,000 and their capital gains rate rises from 15 to 20 percent. Two other provisions also limit the value of their deductions. Taken together, McBride estimates the top .7 percent -- roughly 1.1 million of 143 million tax returns -- will pay about 40 percent of all federal income taxes.
"It creates huge divisions in society and breeds contempt. It's class warfare. It is also unsustainable because it disconnects voters. The bottom half of the population pays no income tax. That's hugely disruptive. Those folks now have an incentive to lobby for more federal spending and it disconnects them from the cost of the federal government."
While most taxpayers were shielded from increases in their income taxes, payroll taxes went up for everyone. The IRS issued new withholding guidelines for employers earlier this week. Some workers will see the higher deductions on Friday -- others next week.
Here are some examples.
- -- for a single person earning $38,000 a year, the IRS told employers to withhold $5,437 a year. That's up $570, or $11 a week.
- -- for someone earning $90,000, they will pay $19,885 -- or $2,443 more than last year.
- -- for someone earning $185,000, the government will withhold $49,459 -- an increase of $5,977.
- -- for someone earning over $400,000, payroll taxes will increase by $270 per week or $14,212 a year.
Still, payroll taxes (that's the FICA deduction on your paycheck) pay for Social Security and Medicare. That is money taxpayers eventually get back, and then some.
Over a lifetime, the average male worker pays $345,000 in FICA taxes, but gets back $417,000 in benefits, according to the nonpartisan think tank, The Urban Institute.