How much your taxes increase on January 1, 2013, will depend on what tax bracket you are in.
If you are really poor, making less than $8,700 and unmarried, your marginal rate will increase from 10 to 15%, but it won’t matter much since you’ll get it all back at the end of the year if you are truly poor. If you work part time though, your earnings will decline; if you make up to $35,350, your rate will remain the same; if you make more than that, up to $388,350, your rate will go up 3% from whatever it is now. If you make more than that, it will go up nearly 5%.
So if you earn the median U.S. income of $50,502, your rate will increase from 25% to 28%; you will be paying the federal government an extra $126 per month, or about $1,512 per year. Budget accordingly.
The Bush tax cuts will expire for the top earners, if they aren’t saved, and they likely won’t be except for the middle class. Congressional Republicans would like the Bush cuts to remain for all income groups in part because many S class corporations are too small to pay corporate income taxes, leaving their taxable income on their personal tax returns. So the much-maligned “1%” of income earners, including millions of small business owners, is going to see a tax increase that could mean the difference between hiring and firing millions of real or potential employees across the country.
What these tax increases will mean for the economy is a highly controversial topic. The National Bureau of Economic Analysis says an exogenous tax increase of 1% of GDP lowers real GDP by roughly 2% to 3%, with effects that are “highly persistent.” This isn’t some Republican think tank study either, but research by David and Christine Romer, the latter of whom is a professor of economics at the University of California, Berkeley and served on President Obama’s economic team.
Congress, as usual, seems to be stalled on the tax-rate negotiations, with Speaker of the House John Boehner (R-Ohio) resolving never to increase rates (while remaining open to closing loopholes) and House minority leader Nancy Pelosi (D-Calif.) vowing never to agree to a deal that will not involve tax increases on the wealthy.
The coming taxmageddon isn’t the only reason for the entire hair-whitening and jowl-shaking going on in congress; the deep cuts wrought by sequestration due on January 1 are widely expected to plunge us back into recession. So you may not have much income tax rates to gripe about, since you’ll be unemployed.
Either way, save whatever income you may be earning presently, you’ll need it.