Indiana News

Fiscal Cliff Could Whack Hoosiers With $2,000 Tax Hike

12/4/2012

Going over the fiscal cliff would cost the average Hoosier somewhere around $2,000.

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If there's no deal on a fistful of expiring tax cuts, the conservative Heritage Foundation calculates the average taxpayer would see his tax burden jump $4,100. Tax analyst Curtis Dubay puts the Indiana average at $2,856 -- the figure is lower because Indiana's average income is lower.

Heritage rolls into its average an assortment of business and energy tax breaks, as well as new taxes taking effect under the health care law. But nearly 60% of the Heritage figure comes from two breaks just about everyone gets: the Bush tax cuts and President Obama's payroll-tax holiday. Heritage puts the impact of those two expirations alone at $1,659.

The Democratic-leaning Progressive Policy Institute calculates the expiration of the Bush tax cuts alone would hit middle-class families with an average $1,700 increase. And president Will Marshall says 27 million middle-income taxpayers could be affected by the failure to adjust the alternative minimum tax. The AMT is supposed to ensure top earners pay some tax, but inflation threatens to extend its reach. Congress has repeatedly adjusted the trigger threshold to avoid that problem, but this year, the AMT patch is part of the fiscal cliff discussions.

The Bush tax cuts created a new 10% bottom tax bracket, slashed the top tax bracket by 4.6 percentage points, cut three other brackets by three points, reduced the so-called marriage penalty and doubled the per-child tax credit. The Obama payroll tax holiday amounts to a 2% raise for workers by reducing employees' share of Social Security payments.

The tax impact is easier to measure, but Marshall notes the spending half of the fiscal cliff is cause for concern as well. The failure of a deficit-cutting deal last year is set to trigger a half-billion dollars in spending cuts, half of that in defense spending. Marshall says that could prompt defense contractors to lay off workers if the Pentagon cuts back on orders.

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