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Bigger Tax Bite for Most Households Under Senate Plan

The legislation, which still must overcome resistance exhibited on Tuesday by House Republicans, would grant most Americans an instant reversal of the income tax increases that took effect with the arrival of the new year. Only about 0.7 percent of households would be subject to an income tax increase this year, according to the Tax Policy Center, a nonpartisan research group in Washington. The increases would apply almost exclusively to households making at least half a million dollars, the center estimated in an analysis published Tuesday.

But the Senate’s decision not to reverse a scheduled increase in the payroll tax that finances Social Security, while widely expected, still means that about 77 percent of households would pay a larger share of income to the federal government this year, according to the center’s analysis.

The tax this year would increase by two percentage points, to 6.2 percent from 4.2 percent, on all earned income up to $113,700.

Indeed, for most lower- and middle-income households, the payroll tax increase would most likely equal or exceed the value of the income tax savings. A household earning $50,000 in 2013, roughly the national median, would avoid paying about $1,000 more in income taxes — but pay about $1,000 more in payroll taxes.

The timing and outcome of a House vote was unclear on Tuesday evening.

Sabrina Garcia, a 35-year-old accounting assistant from Quincy, Mass., who together with her husband made about $102,000 last year, said the payroll tax increase equated to “about $200 a month for my family.”

“That’s a lot of money for us,” Ms. Garcia said. “It means we will have to cut back.” She said in an e-mail exchange that she would most likely postpone buying a new computer. “And forget about being able to save money,” she added.

The deal would impose larger tax increases on those who make the most. It would raise taxes in two ways: by restoring limits on the amount of income affluent Americans can shelter from federal taxation, and by returning to a top marginal tax rate of 39.6 percent. The current rate is 35 percent.

For married couples filing jointly, the deduction limits apply to income above $300,000, while the top tax rate kicks in above $450,000. But both numbers are somewhat misleading, because “income” in this context is a technical term, referring only to the portion of income subject to taxation after exemptions and deductions.

Few households with actual incomes of less than half a million dollars would face a tax increase. The Tax Policy Center calculated that less than 5 percent of families earning $200,000 to $500,000 would actually pay more.

The size of those increases would be much smaller than President Obama originally proposed. The net effect, according to the center’s estimates, is that the top 1 percent of households would see an average income tax increase this year of $62,000 rather than $94,000. “The high-income people really are doing very well in this compared to what the president wanted to do,” said Roberton Williams, a senior fellow at the Tax Policy Center.

The Senate deal would impose fewer limits on deductions than the White House plan. It would also tax income from dividends at a flat rate of 20 percent, rather than the same marginal rate as earned income. And there is another important point, often misunderstood: Affluent households would pay the new 39.6 percent rate only on income above $450,000. They and everyone else would still pay lower rates on income below that threshold.

Households making $500,000 to $1 million would pay an additional $6,700 in taxes on average. Those making more than $1 million would pay an additional $123,000 on average.

Article source: http://www.nytimes.com/2013/01/02/business/economy/a-bigger-tax-bite-for-most-households-under-senate-plan.html?partner=rss&emc=rss

One Woman’s War on Debt Gains Steam After Years in the Making

“It’s so bad out there that there’s a question as to whether Washington can govern anymore,” Ms. MacGuineas said, sitting in the Capitol after briefing a group of legislators. “We want a deal to happen, and want it to happen in a bipartisan way, because otherwise it’s not going to stick.”

Ms. MacGuineas, a budget expert who has advised Republican and Democratic lawmakers, is the face of the Campaign to Fix the Debt, a nonpartisan phalanx of chief executives, politicians and economic experts with $43 million to spend on efforts to pressure lawmakers to broker a deal.

A wisecracking, self-deprecating, third-generation Washingtonian, Ms. MacGuineas has spent years issuing forceful warnings about threats to the solvency of Social Security and to the pristine bond rating of American debt, often using Washington dinner parties as her soap box.

“For some reason, in Washington, you can’t talk about the budget except over food,” quipped Alice Rivlin of the Brookings Institution, who is a part of the Fix the Debt campaign.

Ms. MacGuineas has worked in politics, advising Senator John McCain of Arizona on Social Security during his 2000 campaign for the presidency. But she describes herself as a political independent and has spent most of her career at Washington’s nonpartisan research houses, including Brookings, the New America Foundation and the Committee for a Responsible Federal Budget.

“For the longest time, nobody cared, nobody listened,” she said. “It was 15 years of irrelevancy.”

Two years ago, things changed. With the country adding more than a trillion dollars a year to its debt, more members of Congress became interested in budget data and advice, Ms. MacGuineas said. Corporate leaders and the American public also began tuning in to the looming debt problem.

The Campaign to Fix the Debt started to come together at a salon dinner held in the backyard of Senator Mark Warner, Democrat of Virginia, in the fall of 2011. An influential group of economic, political and business leaders — including the former Federal Reserve chairman Alan Greenspan and Mark Bertolini, the chief executive of the Aetna insurance company — huddled in a too-small tent in the pouring rain.

Maybe it was the fact that the 60 guests were mashed together, Mr. Warner said. Maybe it was the generous pours of wine. But the dinner took on the impassioned feeling of a “tent revival,” he said.

“It was Democrats and Republicans, members of the House and Senate, saying, ‘I’m ready to do what it takes,’ ” Mr. Warner said. Indra Nooyi, the chief executive of PepsiCo, at one point announced that America needed to “get its swagger back.”

After the dinner, Ms. MacGuineas felt primed for action and set out to raise $3 million for a nonpartisan campaign to push Congress to get a deal done, once and for all. She has ended up with 14 times that amount and is now helping to run the campaign — which is intended to fold in a year or two, if Congress makes progress — out of space in the New America Foundation’s offices.

She also ended up with an all-star cast. Erskine B. Bowles and Alan K. Simpson, who led the president’s debt commission, are cited as co-founders. The chief executives of JPMorgan, BlackRock, Boeing, Cisco, Honeywell, General Electric and other companies have signed on.

In recent months, Fix the Debt has pressed White House officials and members of Congress in face-to-face meetings. Its policy team has responded to questions from reporters and legislative staffs. It has opened 17 state-level operations and undertaken a public-relations campaign, including national television advertisements.

Article source: http://www.nytimes.com/2012/12/24/business/campaign-to-fix-the-debt-gains-steam-after-years-in-the-making.html?partner=rss&emc=rss

Bigger Tax Bite for Most Households Under Senate Plan

One Woman’s War on Debt Gains Steam After Years in the Making

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