Tax Policy Center: Middle Class to Take Substantial Tax Hit

Middle-class workers are about to get socked with a whopping tax increase of $1,250 on average under Washington’s new fiscal cliff deal, the nonpartisan Tax Policy Center says.

In fact, more than 77 percent of tax filers will be paying more.

The Tax Policy Center reports that workers earning less than $10,000 annually will pay about $68 more in federal taxes.

Those pulling in between $50,000 and $75,000 will see a tax hike of $822, on average.

And people with incomes of $1 million or more will be whacked with increases of about $170,340.

'The economy needs a stimulus, but under the agreement, taxes will go up in 2013 relative to 2012,’’ said William Gale, co-director of the Tax Policy Center.

“Not only on high-income households, as widely discussed, but also on every working man and woman in the country, via the end of the payroll tax cut.’’

Gale explained that for most households, payroll taxes takes a much larger bite than income tax does.

“And the payroll tax cut therefore, as [the Congressional Budget Office] and others have shown, was a more effective stimulus than income tax cuts were.’’

That’s because the payroll tax cuts “hit lower in the income distribution and hence were more likely to be spent.’’

Workers will now have to pay 6.2 percent payroll taxes, instead of the 4 percent they had been paying for the past two years.

The largest increase will still be seen by top income earners, who President Barack Obama targeted as he fought for his version of fiscal reform. The federal tax rate will be around 39 percent for that group.

That’s compared to 26 percent for those making from $200,000 to $500,000 and 14 percent for those earning from $40,000 and $50,000.