Deal means taxes will rise for most Americans

WASHINGTON (AP) — Most Americans will pay higher federal taxes in 2013, even though the tax package Congress passed New Year's Day will protect 99% of Americans from an income tax increase.

About 77% of American households will face higher federal taxes in 2013 under the agreement negotiated between President Obama and Senate Republicans, estimates the Tax Policy Center, a nonpartisan Washington research group.

That's because even though just 1% of households will pay higher income taxes, an increase in federal payroll taxes will hit nearly every wage earner, the Tax Policy Center says.

Households earning between $40,000 and $50,000 a year face an average tax increase of $579 in 2013, according to the Tax Policy Center's analysis. Households making between $50,000 and $75,000 a year face an average tax hike of $822.

The reason: the legislation does not prevent the expiration of a temporary reduction in Social Security payroll taxes. Last year, a 2 percentage-point temporary cut in federal payroll taxes was worth about $1,000 to a worker making $50,000 a year.

"For most people, it's just the payroll tax," said Roberton Williams, a senior fellow at the Tax Policy Center.

Helping Social Security meet its obligations will be financed by a 12.4% tax on wages up to $113,700 a year, with employers paying half and workers paying the other half.

Obama and Congress had reduced the share paid by workers for Social Security to 4.2% from 6.2% for 2011 and 2012, saving a typical family about $1,000 a year.

The richest households face the biggest tax hikes. The income tax rate rises to 39.6% from 35% for individuals earning above $400,000 for individuals and $450,000 for married couples.

For 2013, households making between $500,000 and $1 million will pay $14,812 more in taxes, says the Tax Policy Center analysis. Households making more than $1 million would get an average tax increase of $170,341.

"If you're rich, you're almost certain to get a big tax increase," Williams said.

The wealthiest families also will pay higher taxes this year to help finance Obama's 2010 health care law.

A new 3.8% tax will be imposed on investment income for individuals making more than $200,000 a year and couples making more than $250,000.

The tax increases could have been a lot higher for all Americans. A huge package of tax cuts enacted under President George W. Bush was scheduled to expire Jan. 1.

The Bush-era tax cuts lowered taxes for families at every income level, reduced investment taxes and the estate tax, and enhanced a number of tax credits, including a $1,000-per-child credit.

The package passed late Tuesday by the Senate and House extends most of the Bush-era tax cuts for individuals making less than $400,000 and married couples making less than $450,000.

"While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country," Obama said late Tuesday.