Report: Nine in 10 would pay more taxes after the ‘fiscal cliff’

Almost nine in 10 households would pay more next year if the economy absorbs all of the tax increases in the so-called "fiscal cliff," a think tank reported Monday.

The report from the Urban-Brookings Tax Policy Center found that people in the U.S. would owe the Treasury a total of $536 billion more in 2013 if the fiscal cliff were not averted, with the average household taking a hit of almost $3,500.


Underscoring the challenge for policymakers, the study also found that, while the looming tax increases would threaten households almost across the board, the policy changes would not hit all income levels the same.

The lowest-earning households would be hit harder by the expiration of the payroll tax cut, first agreed to in 2010, and enhancements of tax breaks like the Earned Income Tax Credit.

At the highest end, the biggest impact would come from the expiration of Bush-era rates on income and capital gains, as well as tax increases included in the 2010 Democratic healthcare overhaul.  

And in the middle, taxpayers would be most hit by the loss of the payroll tax cut, and the rise in rates first established in 2001 and 2003. 

“There is a sort of accidental nature to this,” Eric Toder, one of the paper’s authors, told The Hill after a Monday briefing on the study. “I don’t think anybody sat down and said, ‘Oh, wouldn’t it be wonderful if we had all these provisions expiring at once at the end of 2012.’ ”

In all, the Tax Policy Center divided the scheduled tax increases into nine distinct groups, also including the expiration of current estate tax rates, the patch that keeps the alternative minimum tax from hitting more middle-class families and the raft of targeted tax breaks commonly known as extenders. 

Around the end of the year, the economy also faces billions of dollars in automatic spending cuts, and officials on both sides of the aisle will look to find an agreement to avoid the fiscal cliff after November’s election. 

Democrats and Republicans both have said they want to extend Bush-era rates on all family incomes up to $250,000 a year, and there appears to be very little appetite for a third year of a payroll tax cut. 

But the two sides have entrenched positions on tax rates for the highest earners, as well as on the expansion of refundable tax credits. GOP lawmakers, marking the start of fiscal 2013, tried again on Monday to blame President Obama and Democrats for the deadlock.

The Tax Policy Center’s new study also found that the highest earners would take the biggest hit, dollar-wise, if the fiscal cliff weren’t averted. 

An average middle-class household — making between around $40,000 to $65,000 — would see an almost $2,000 tax hike next year, while those making less than $20,000 a year would see their bill rise by an average of just over $400. Both groups would see their after-tax income drop by around 4 percent. 

But households in the top 20 percent of earners would take a $14,000 hit, and those making a half-million dollars or more a year — the top 1 percent of taxpayers — face an average $120,000 increase. That top 1 percent would see a more than 10 percent hit to their after-tax income. 

But one of the paper’s authors also cautioned not to read too much into the differences.

“Measuring how much people are hurt depends a lot on what you think their ability to pay is,” Roberton Williams told reporters. “At the bottom end, the ability to pay is a lot less, and therefore the tax increases would hurt more — even though they’re a smaller share of income.”

Don Marron, the Tax Policy Center’s director and another of the paper’s author, also warned that the uncertainty surrounding the cliff could also start playing a role this year — especially if investors get spooked about 2013 rates. 

“If we get into December and Americans believe that capital gains rates are going to go up by this amount, you should expect to see some amount of selling,” Marron said.