Congress and President Obama passed a tax package on New Year's Day. The package will be felt by most Americans according to the Tax Policy Center. The impact is hardest with an increment in the payroll tax which amounts to about $1,000. per worker for those earning in the vicinity of $50,000 per year. The workers' payroll tax rate has been 4.2% in recent years. Now, the rate has been lifted to 6.2%, on the first $113,700 of worker pay.
The Tax Policy Center estimates that households making between $40,000 and $50,000 will face an average tax increase of $580 in 2013. Those making between $50,000 and $75,000 will face an average tax bite increment of over $800. High-income households should expect higher tax rates on ordinary income, capital gains, dividends and the new health reform taxes. The new tax rates apply to families earning $450,000 a year income or more and individuals making $400,000. or more.
The biggest gains for the Treasury aren't in tax increases alone. It's in job growth and the revenue from adding taxes from newly hired workers. 2013 will be a better year for college graduates with demand growing for degrees earned in engineering, computer applications, accounting and finance. The most dramatic pick-up in construction is expected in 2014, with 300,000 more jobs according to an economic analysis at Moody's. Even State governments are expected to hire again with new hires projected to increase slightly.
Lawmakers and President Obama have yet to tackle the details of projected cuts in spending; such as, defense spending. There are cost savings to be achieved from the historic draw-downs of troop levels in Iraq and Afghanistan. In addition, there are other areas for savings like military base closings and procurement in things like drone manufacture.
Various ideas have been discussed concerning the migration of Medicaid funding to the States who may be able to administer the program more cheaply. The States have the databases of information for local residents and therefore some duplicate record-keeping could be avoided or lessened.
One of the biggest areas for potential revenue is in excess consumption taxes for junk food, sugary sodas, cigarettes and even marijuana as an outgrowth of legalization in Washington State. Taxing these items would provide a boom for social programs like Medicaid which have come under financial stress.
For now, the first fiscal cliff has been avoided. The stock market is rising on the news of a deal and Americans may look forward to a better year for the economy and employment. The next hurdle will be the federal debt limit.